Anthropic's falling IPO valuation raises stakes for broader AI trade

The big picture: An Anthropic reset could have consequences far beyond the frontier model company and private markets. It could ripple through the AI trade at a time of many ripples.

Catch up quick: The tech-heavy Nasdaq Composite index closed down 5.5% Thursday, firmly in correction territory, down almost 12% from its high on Oct. 6.

• That came two days after Democrats notched historic gains in the midterm elections, prompting investors to weigh the very real possibility of a slowdown in data center buildouts.
• The SOX semiconductor index plummeted 12.3%.

• Those fears abated only slightly Friday, leaving questions of direction lingering through the weekend.

Zoom out: Anthropic sits at the economic center of the AI boom, and its coming IPO could prove a defining test of the lofty valuations underpinning the entire industry.

• The AI giant has nearly $900 billion in computing and infrastructure commitments involving companies such as Amazon, Google, Microsoft and Broadcom.
• Its financial fortunes reverberate further through the supply chain, impacting valuations from chip manufacturers and networking companies to data center operators and power suppliers.

Stunning stat: Anthropic's target valuation today sits about $1 trillion (with a t) lower than a month ago.

• The company was reported to have entered October targeting a $2 trillion valuation.
• Investors, pointing to a slowdown in its revenue growth rate for the third quarter, reportedly put the number around $1.5 trillion in the middle of the month.
• After AI stocks plummeted Thursday, and investors considered the possible effects of Tuesday's midterms, discussions of Anthropic's valuation had fallen as low as $1 trillion, WSJ reported.
• Bloomberg cited investors putting it between $1.1 trillion–$1.3 trillion.

The intrigue: The IPO — if it happens later in November — would have an equally sizable impact on public markets.

• Max Kettner, chief multi-asset strategist at HSBC, described the current AI trade in an interview with Bloomberg Radio as driven by a series of narratives. And right now the narrative — which he doesn't believe — is that the AI cycle is dead.
• Anthropic's IPO is the biggest potential catalyst to change that narrative. And the best way to ensure that, Kettner says, might be a conservative valuation — even one below $1 trillion.
• The worst-case scenario for a shaky AI trade is a repeat of SpaceX's IPO, he said, where initial buying euphoria quickly reversed, and the stock stayed mired under its offering price for over a month.

The bottom line: Anthropic's IPO could help the battered AI trade regain its footing — or provide another reason for investors to run for the exits.