Anthropic's $100 billion bet is the only market that matters now

The mood music is sounding a little more mellifluous for Anthropic PBC’s mega initial public offering. On the same day it was launched this week, Meta Platforms Inc. announced a bravura $95 billion share sale, and tech stocks have crawled above their October low.

But some inconvenient facts remain: IPOs are having a tough time, Anthropic’s financing goals are vastly ambitious and the consequences of its success or failure will weigh heavily on both stock and credit markets.

Dario Amodei’s company wants to raise at least as much as Elon Musk’s SpaceX IPO, according to Bloomberg News, a deal that brought in a record-breaking $86 billion in June. The maker of the Claude chatbot could beat that by raising as much as $100 billion, Reuters has reported.

Meta’s mammoth stock sale at least provides fresh evidence that investors are willing to write big checks to support the artificial intelligence trade. Facebook’s owner sold $38 billion of common stock and preferred shares, more than initially targeted, with a further $60 billion of equity planned through ad hoc placements starting next year. The chip giants Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. are buying a small portion but the market will do the heavy lifting. Despite this, Meta’s stock price fell less than 2% on Monday’s news.

Stock investors are being asked to do their bit to finance AI capital expenditure after the credit market did the early work. As advisory firm Yorkville Ives puts it, Meta’s "debt leg has already been used," with its long-term borrowing rising to $81 billion in the third quarter from $29 billion a year ago.

This month also saw successful tech-related equity financing for the $23 billion purchase of US software firm PTC Inc. by Schneider Electric SE. The buyer raised €6 billion ($6.7 billion). That’s vast, both for a French company and for Europe, and a striking success when the acquirer’s host nation has seen its borrowing costs rise sharply.

These historically epic equity deals seem auspicious for Anthropic. But sales of newly minted shares by established blue-chip companies are not the same as IPOs. Meta and Schneider are known quantities. Existing investors have good reasons to add to their holdings when firms they like raise equity at a discount. IPOs by contrast are the ultimate test of risk appetite. Whatever the "must have" aura that surrounds Anthropic today, investors have a choice of whether or not to buy, and they may have to make room for it.

Moreover, the IPO environment has deteriorated since SpaceX’s launch. Rates on US 10-year government debt have risen to 5% from 4.5%. While SpaceX has narrowly performed better than the stock market, many of this year’s US IPOs have done worse. The average gain is just 2%, according to data compiled by Bloomberg. IPOs by data center operators have had a torrid time.

Anthropic is enjoying rapid revenue growth. Nevertheless, the business is arguably tougher to value than SpaceX, which has a longstanding rocket-launch business and a profitable telecoms enterprise, Starlink, whose cash funds Musk’s more ambitious AI-related endeavors. As with SpaceX, expect global retail investors to bolster demand.

Some equity strategists are sanguine about shareholders’ ability to absorb Anthropic’s needs after analyzing aggregate flows of cash. On the one hand, tech titans such as Meta and Alphabet Inc. have switched to issuing stock from purchasing it, sucking cash out of the market rather than giving it back to investors. But buybacks by the wider corporate sector have compensated. And these are not just from the obvious beneficiaries of AI capital spending like Nvidia and Micron Technology Inc.

Strategists at Deutsche Bank AG argue that the boom in equity issuance is being driven by strong demand for shares and will slow but not halt the market rise.

On paper it makes sense to wager that the market can digest another main-course helping of stock. And yet, Anthropic is still an IPO. It’s subject to sentiment and chance. And everyone should care because this deal has become the totem of the AI trade — and the AI trade is the market.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.