Anthropic presses ahead with IPO as tech rally pauses

The stunning tech rally on Monday that helped US stocks to recover last week’s losses has hit pause. Investors have been jolted awake by news that the Anthropic IPO is going ahead, and it’s going to be big. 

Anthropic targets a $1.4trn valuation 

This much-anticipated IPO would end months of speculation about the details of the listing. The company’s IPO prospectus states that the company is seeking to raise $64.4bn from this share sale, and the share price the company is targeting is $70 to $78. Anthropic will sell 800mn of its own shares, with early backers selling the rest of the shares. 

If the IPO is successful this would give Anthropic a full valuation of $1.4 trillion, making it the 9th largest company in the US, just behind the valuation for Tesla, which has a market capitalization of $1.49bn. 

Why the AI recovery may not be sustainable 

The maker of AI tools including Claude, is tapping the market at an interesting time. There are unresolved issues around whether huge valuations are justified for AI companies. Added to this, there are concerns that AI capex plans for 2027 and beyond will be reduced once Democrats gain formal control of Congress in January. Some of the new members of Congress have been public about their concerns with AI and their desire to slow the pace of the build out. The Nvidia spy scandal has also increased the regulatory risk for the sector. 

These unresolved issues for the AI trade complicates the Anthropic IPO and may hinder its success. Added to this, the bounce in AI that we witnessed on Monday might not be sustainable and the sell off could resume. 

Nvidia’s share price resumes sell off on Tuesday 

Nvidia was in the cross hairs on Monday as concerns grow about the future of Jensen Huang’s tenure at Nvidia. The FBI are now investigating his relationship with an alleged Chinese spy. There are concerns that Huang may have indirectly facilitated the trade of advanced Nvidia chips into China, and the US government wants to know if he was tricked into disclosing Nvidia’s technological secrets to a Chinese honeytrap. 

The company’s share price sank over 4% on Monday, and it is falling again on Tuesday, although the decline is moderating. Currently the stock price is down 0.7% in the pre-market. Nasdaq futures are also pointing to a lower open later today. 

Nvidia’s decline early on Tuesday comes after Bank of America removed Nvidia from its top stocks list along with Micron and Lam. All stocks fell in pre-market trading today. BOA did not give a reason why they had been removed from the list, and the company’s analysts have kept their buy ratings on the stocks. 

When will bargain hunters step in to buy Nvidia? 

Nvidia’s valuation is now getting battered by internal forces, and this cost the company $190bn on Monday. After a weak few months for the chip giant, its 12-month forward P/E ratio is 11 times future earnings. Nvidia is seriously cheap relative to the rest of the market, yet the stock cannot catch a break. The share price is well below its 200-day sma at $203, and is down $22 in a week. 

Players in the market are unwilling to buy Nvidia, even though valuations suggest that the correction in the AI trade is overdone. Afterall, Huang is replaceable, and China doesn’t factor into Nvidia’s current revenue forecasts. 

However, the numerous unresolved issues are keeping investors on the sidelines. These include the latest investigation, hyperscaler capex plans and future regulation. They appear to be insurmountable hurdles that are in the way of a recovery for the share price. Not even analyst estimates of $108.8bn of revenues for last quarter is enough to generate sustained interest in Nvidia’s share price right now, which is a big problem for Nvidia bulls. 

Rising expectations of a Fed rate hike in December and signs of rotation in the stock market are also hindering the AI trade as we move towards the final months of the year. The path is not clear for the AI trade, and it may continue to struggle, even if Anthropic does IPO as planned next week. 

Chart 1: Nvidia, daily chart 

Source: XTB