Instant Reaction: Anthropic Files for IPO

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1:47$16.3 billion versus$1.2 billion last year. So big growth in revenue. But first half net loss,$80.7 billion. So, wow, the numbers are just amazing. Losing a lot more than they're taking in, I think, is the takeaway there. Exactly right. The ticker symbol ANT. ANT. Goldman Sachs, Morgan Stanley running this deal, as you would expect. Let's get some more reporting on this news. Peter Elstrom, executive editor for Global Technology for Bloomberg News, joins us here. Peter, the numbers are just staggering. where to start? What do you make about this highly anticipated IPO? The S1 filing just dropped with all the numbers.

2:25So we're all pouring through it right now. I think you flagged the numbers that people are going to start with. It's the revenue growth and the losses that they've had. As you mentioned, the revenue for the first half was$16.3 billion. That was up from$1.2 billion a year earlier. But the losses are quite staggering, as you mentioned, just over$70 billion. That includes some special charges. Certainly, it's not just operating losses there. But as we look through the S1, certainly people are going to be digging into those details and see exactly how they manage that financial performance. Peter, I'm looking at SpaceX, which is going to be obviously a comp for this IPO for no other reason than the size here.

3:07SpaceX IPO at 135, stocks now trading at 147. That's a good thing if you're trying to bring another mega deal. What do you think the strategies of this management team is when they get on the road here? Because it's such a big deal here. Yeah, it's an enormous deal. And certainly the markets have been a bit skittish about AI investments of late. Certainly we've seen that with CoreWeave in particular, that on the credit side, there are some growing concerns about how these companies are going to be able to execute. Of course, Anthropics sits in a different part of the value chain with their frontier model.

3:42Claude getting lots of revenue, generating lots of revenue at this point. They have a message at the top of the S1 where Dario Amadei, the CEO, his sister Daniela, and the rest of the founding team lay out their principles for this. And certainly they're talking about AI as one of the most impactful technologies of our generation. I think they're going to try to get investors excited about the opportunities that lie ahead of us, that this is not just about building out this infrastructure, but then using that technology to solve a bunch of other problems that we see in the future. And they articulate with a very substantial opening memo in the S1.

4:20There are risk factors, though. We probably want to talk about those, too. Yeah, no, tell us about that, then. What are the risk factors? Certainly, there are pages and pages of risk factors. It looks like roughly 100, almost 100 pages of risk factors. They've talked about this in the past. Yeah, certainly. And we talked about this a couple months ago when they had one of their researchers resign and warn about how the Frontier Labs were gambling with human lives. So certainly they are raising questions about the ability to control AI, what it's going to do for the economy, for job losses, for all these things that we've heard over the past few weeks.

4:56And they articulate that in quite a bit of detail in the S1. Peter, what do we know about the timing here, when they might start a roadshow, when they would like to maybe price this thing? What do we know so far? Well, we've heard so far that they do want to get this done before Thanksgiving. So the window is closing there. There's a period of time where investors get to digest this information. There'll be a roadshow where management will go out and talk with investors. Certainly, the investment bankers are going to play a central role in how those conversations go and how they articulate the message there.

5:29They'll meet with investors, answer their questions, and then the goal will be to float after that. All right. I've written a lot of prospectuses in my day, and I never had a risk section that includes this. Anthropic warns of catastrophic existential risk to humanity. How do you price that one? I mean, I don't know, Jess. How does that work? I like the way Bloomberg News characterizes it here. Anthropic files for IPO to become first frontier AI lab to list. Going first, that's big. Mandeep Singh joins us here. He's head of all the technology research for Bloomberg Intelligence. Man, Dave, what's the story you think Anthropic needs to tell when they start the roadshow?

6:09What does the street really need to hear? I think they have a really nice chart in the S1 on compute efficiency, which is basically saying for every dollar of compute, we have a much better trend in terms of revenue that we are able to generate. In other words, that's a proxy for gross margins. and gross margins are inching closer to 50 percent, whereas just a quarterback, it was like sub 20 percent. So clearly they are showing that, you know, even though this is a variable cost, high variable cost business, we are able to improve our margins. And that's driven by, you know, the scale that they have.

6:52Well, Paul and I were talking about how within the filing, It was talking about risks, how the catastrophic existential risks to humanity. How do you price something like that when it's in this type of report? Well, I mean, what they are saying, and this is very typical of, you know, a risk disclosure for any new technology IPO. They will say, you know, a worst case scenario is where things, you know, get out of hand just to make sure that, you know, they avoid liabilities in terms of something like this, where you are developing a model. We know these models have had cybersecurity issues. And I think it's very typical of any risk disclosure of a new technology company going public.

7:36Again, it looks just looking at the Bloomberg News reporting that maybe they've talked down their valuation of this company a little bit. Does that just reflect kind of the tech market, maybe the AI story getting a little bit of pushback over the last several weeks, months? Yes, I think the whole backdrop isn't as good as it was maybe three, four months back. And SpaceX probably timed it better in that perspective. But to my mind, I think a company like Anthropic, when it has such fast growth with improving margins, it's a good story to go out to investors with. So even though the bankers may price the IPO conservatively, I wouldn't be surprised, you know, that's to make sure that the IPO is oversubscribed.

8:23What do you think this tells us to more broadly about some of these other delayed IPOs that have been in the pipeline as far as just like the demand for something like this? Yeah, you need the scale of someone like Anthropic to go out to investors with right now. If you are a subscale player where you don't have an improving margin story along with top line growth, that's when you pull back your IPO. And we saw that with a few of the smaller names where I bet you the margins weren't really improving, whereas Entropic can do it because they have the scale. And they are obviously, you know, the poster child when it comes to this new business model of LLMs.

9:01For most IPOs, one of the critical factors is management because you don't know them. Yeah. And you kind of got to make an assessment of the quality of management. What do we know about this management team? Not a whole lot. And I think you bring up a very good point that they don't have the track record as, you know, someone in terms of having seasoned executives and whatnot. Although they did bring in a new CFO a few months back, who I think was front and center with this IPO process. And I do think it made a difference in terms of the disclosures around that$750 billion in commitment number.

9:40How does that translate into the income statement and what sort of obligations they have? So from that perspective, I think they do have a steady hand in terms of the new CFO that they have brought in. So what's the next thing you're watching for after this report just dropped? It has to be the IPO pricing. And the bankers will price the IPO within, I would say, 10 days or so. And then the roadshow will begin. So to my mind, where they price the IPO, to Paul's point, if they're too aggressive, then there is a risk. You know, there could be disappointment. Although I think going by the rumors, they're going to price it conservatively so that you have a big first day IPO pop.

10:23And I think that will be good. All right, Mandeep, thank you so much. We appreciate it. Mandeep Singh, nobody better to chat up this Anthropic S1 than Mandeep Singh. He runs all of our tech research at Bloomberg Intelligence.

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