Anthropic Stock (ANT) IPO at $70-$78: Buy Day 1 or Wait?

Anthropic stock (ANT) at $70 to $78: buy day 1 or wait?

0:00 Anthropic, the company behind Claude, just set its IPO price range at $70 to $78 a share, under the ticker ANT, which values it at as much as $1.4 trillion before it has traded a single share. It's expected to start trading on November 19, and the company expects up to 20% of the shares to go to regular investors like us. So should you buy it on day 1? 5 months ago, SpaceX did almost this exact thing. People who got SpaceX at the IPO price are up about 6%.

0:32 People who bought it at the end of the first day are down about 11%. Same stock. Same day. Completely different result. And Wojak, of course, bought SpaceX 2 trading days later, at the top tick. My name is Blake. I dig up stocks before the bull stampede, so you're not buying the top like Wojak. And today on 9to5investing, we're figuring out whether to buy Anthropic stock on day 1 or wait.

Face value vs day 1: the SpaceX IPO lesson

1:01 Here's the thing most people miss about IPOs. Think of it like concert tickets. There's the face value price, and then there's the price the guy outside the arena is charging an hour before the show. The IPO price is face value. That's the $70 to $78. The price you see when the stock opens on that first morning is the guy outside the arena. And those 2 prices can be very far apart. With SpaceX, face value was the IPO price, and by the close of the very first day the stock was 19% higher.

1:27 2 trading days after that, it peaked. Anybody who bought at that peak close is still down more than $68 a share as of Tuesday. That's the guy outside the arena. That's Wojak's guy. And this isn't just SpaceX. A finance professor at the University of Florida named Jay Ritter has tracked every IPO going back to 1980. Across more than 9,000 IPOs, the average first-day jump is 19%. So on average, by the time you and I can click buy, the stock has already moved.

1:51 And here's the number that matters. Over the next few years, people who got in at the IPO price earned almost double what people who bought at the first day's close earned. Those day 1 buyers, on average, trailed the overall market by about 20 points. So the edge in IPOs goes to who gets face value. I also lined up 9 of the biggest IPOs of the last 15 years, from Facebook to SpaceX, and checked where each stock was about 6 months later. 7 of the 9 were trading below their first-day close.

2:17 Rivian was down 77% from its first-day close. Facebook and Uber were both down sharply too. The 2 exceptions were Arm and CoreWeave, where day 1 buyers did great. So it's not a law. It's just the way to bet.

Can you get Anthropic IPO shares?

2:34 Now, here's what's different this time, and it's good news. You might actually be able to get face value. Anthropic's prospectus says it expects up to 20% of the shares to go to retail investors, through Schwab, Fidelity, Robinhood, SoFi and E*TRADE. A normal IPO is more like 5 to 10%, according to CNBC. The way it works is you go into your brokerage app and put in a request, which they call an indication of interest, before the price is set. There's no guarantee you get all of the shares you ask for, or any.

2:58 Robinhood has already said it only gets a limited number, and CNBC reports Fidelity wants at least $25,000 in your account. Anthropic's own IPO site says the price is expected to be set on November 18, and trading is expected to start on November 19, subject to regulatory clearance. Expected, not promised. That date can still move.

What you're buying: growth and a $104 billion loss

3:16 So that's how you buy it. Now, what are you actually buying? Start with the growth, because it's ridiculous. Last quarter, Anthropic did about $17 billion of revenue. In the same quarter a year earlier, it did about $1.4 billion. That's roughly 12 times bigger in 1 year, and the company says its run rate, which basically just means the latest month multiplied out to a full year, hit about $81 billion at the end of October. More than half of the Fortune 500 are paying customers, and no single customer is more than 10% of revenue.

3:49 I have never seen a company this size grow this fast. Ever. But then you get to the bottom line, and it says Anthropic lost $104 billion in the first 9 months of this year. Zoomer saw that number and immediately closed the app. Stay with me, because this is where being an accountant actually helps. About $94 billion of that loss isn't cash going out the door. Anthropic borrowed money using notes that convert into stock, mostly from Amazon, and as the company got more valuable, accounting rules made it book that increase as a loss.

4:21 Said another way, the more valuable Anthropic got, the bigger its loss looked on paper. Strip that out, and the operating loss for those 9 months was about $1.26 billion, and the business actually brought in about $6.6 billion of cash from operations. So the real picture is a small loss and positive cash flow.

The bull case for ANT stock

4:39 Now let Positive Pete talk, because his side is strong too. He'd say this is the fastest-growing big company anybody has ever seen, it has well over $100 billion of cash in the bank before the IPO even happens, and its operations are already bringing in cash. He'd point out that the range came in below what some investors were hoping for. CNBC reported Anthropic had been aiming for a $2 trillion valuation until recently. And a price that leaves room to run is the kind that tends to pop.

5:04 Ritter's data says IPOs that end up pricing above their range jump about 50% on day 1, on average. Which is exciting if you got face value, and dangerous if you're the 1 buying from the guy outside the arena.

The 4 risks

5:15 Now, Negative Nelly has been waiting patiently, and she has 4 things. Number 1 is the bill. Anthropic has committed to spend about $900 billion, almost all of it on computing power, over the next 2 decades. About $71 billion of that comes due in the next 12 months. For comparison, the company's revenue over the last 12 months was about half of that. And a lot of those contracts are what's called take or pay, which basically just means you owe the money whether you use the computers or not.

5:39 It's like signing a 20-year lease on a restaurant 10 times the size of the 1 you have now, because the line out the door keeps getting longer. It works great, as long as the line keeps growing. And the company is honest about that. The prospectus says, quote, "We do not expect our revenue will continue to grow at comparable rates, and we cannot assure you that it will continue to grow at all." 1 fun detail here. 1 of Anthropic's biggest suppliers is SpaceX.

6:01 The filing shows compute deals with SpaceX's AI unit worth up to about $120 billion. Number 2 is the price. At the top of the range, you'd be paying about 40 times the revenue Anthropic made over the last 12 months. Professor Ritter looked at that too. Out of more than 4,000 IPOs with real sales, only 14 came public at 40 times sales or more, and on average those 14 went on to trail the market by about 15%. His quote to Fortune was, "a lot of things have to go right."

6:26 To be fair, if you use that $81 billion run rate instead, the multiple drops to around 17, and a well-known valuation professor at NYU, Aswath Damodaran, estimated the company is worth about $1.5 trillion. So it depends on which number you believe. Number 3 is control. When you buy this stock, you get a share of the profits, but you don't get much of a say. The 7 co-founders control 50.1% of the votes through a single special share, and a separate trust gets to pick the majority of the board.

6:52 Anthropic is also a public benefit corporation, which basically just means the board is required to weigh its mission against your returns. You might be fine with that. Just know you're not the boss. And number 4 is the 1 that matters most for the day 1 question. It's the supply of shares. The IPO is 825 million shares, which sounds like a lot, but it's only about 6% of the company. A small float with a huge crowd is exactly how you get a big first-day pop.

7:20 It's also how you get a big drop later, when the other 94% starts showing up. And with Anthropic, it shows up faster than it did with SpaceX. SpaceX insiders had to wait about 2 months for their first chance to sell. Anthropic's prospectus lets some employees and insiders start selling on the very first trading day. And by early February, about 11 weeks in, up to 1.6 billion insider shares can be sold. That's about twice the size of the IPO itself.

7:48 On top of that, the 7 co-founders are each selling about $250 million of stock in the IPO. And there's a separate $26 billion sale to Google, Nvidia and other suppliers that isn't under the IPO lockup agreements, although those buyers generally still have to hold for about 6 months. So the supply doesn't wait 6 months. It starts opening week. Chad heard all 4 of those and bought anyway. Trad Wife asked him what the ticker was, and he said, "Claude."

8:12 So here's how I'd think about it. Buying the IPO and buying day 1 are 2 different decisions. If you believe in the business and your broker offers you shares at the IPO price, history says that's the better seat. You can put in a request for an amount you'd be comfortable holding for years. If you don't get shares, the question is whether to chase it at the open. And personally, I wouldn't chase it at the open. With SpaceX, the stock dropped below its IPO price about 5 weeks after it started trading, and it closed below it on 22 different days.

8:38 The patient buyer got a better price than the day 1 buyer, and at times a better price than the people who got the IPO. That doesn't mean the same thing will happen with the Anthropic IPO. With Arm and CoreWeave, the people who bought on day 1 did great. But it does mean you don't have to decide in the first 5 minutes of trading.

What I'd watch before ANT trades

8:53 There are a few things I'd watch. First, where it prices. If it prices above $78, that tells you demand is hot, and the first day could get silly. Second, the first-day pop. The bigger the pop, the more of the next few years' gains somebody else just took. And the calendar. Insider shares start coming loose in the first week, with more in mid-December, more in January, and a big batch after the first earnings report. If you want to own this for 10 years, a few weeks of patience costs you almost nothing.

9:22 And if you want to own it for 10 minutes, well, that's Wojak's plan. The accountant in me likes the business more than I expected. The investor in me still wants to see it trade first. And the Wojak in me will definitely be putting in a request to Robinhood for some IPO price shares of Anthropic. But I definitely wouldn't chase it on the first day if I don't get any. So are you putting in for IPO shares, buying on day 1, or waiting it out? Tell me in the comments, I always appreciate the nerdy discussion.

9:47 YouTube already priced your next video, and face value is free.