Anthropic's third quarter results mean IPO math and history are not on its side, analysts say
Anthropic’s IPO is looking like an increasingly expensive and risky bet after the company released third quarter financial results yesterday that showed its rate of revenue growth slowing and its expenses climbing at a faster pace compared to prior quarters.Several analysts Fortune spoke to said math and past experience are not in favor of Anthropic producing stellar returns for investors. That may explain why institutional investors are reportedly pushing the company and its IPO advisors to price Anthropic’s shares at the lower end of a $1.5 trillion to $2 trillion valuation range that the company is seeking in its public stock offering.
TL;DR
- Anthropic's revenue growth slowed in Q3 while expenses, particularly for compute and infrastructure, increased faster.
- Analysts suggest Anthropic's target valuation range of $1.5 trillion to $2 trillion is risky, with historical data showing poor returns for similar IPOs.
- A valuation above $1.41 trillion would require Anthropic to achieve annual after-tax profits of at least $100 billion, a level reached by only a few major companies.
- High compute costs and the need for expensive short-term capacity are pressuring Anthropic's operating margins.
- Despite margin pressures, Anthropic maintains a healthy gross margin and significant cash reserves to fund continued investment and research.
- Some experts believe paying a premium for compute is rational for AI companies to achieve capability thresholds and secure future revenue.
- Valuation models suggest that even with optimistic assumptions about future revenue and margins, the equity value may be at the lower end of the target range.