Anthropic's IPO revives jitters about the market's ability to absorb a deluge of AI stock

The Anthropic IPO excitement is running high, but with the company’s S-1 filing has come a question about how markets might react to yet another historic AI offering.

It’s similar to a question that cropped up ahead of the SpaceX IPO this summer: can an IPO of such size have a negative impact on the market?

Anthropic submitted its long-awaited IPO filing on Monday, with the AI giant expected to target a $1.5 trillion to $2 trillion valuation when it makes its debut on the Nasdaq in November. The valuation would make Anthropic the largest IPO ever, and it’s already unleashing a wave of concern from investing experts about how the market might be able to absorb another historic AI offering, just months after SpaceX’s IPO.

Strategists said they’re eyeing a handful of risks related to the deal. The main concerns are that the AI titan could spark outflows in other areas of the tech sector, add to the market’s already-high concentration risk, and immediately jolt markets upon trading.

The filing also comes at a fraught time for the AI trade, with AI, chip, and neocloud stocks hit by a bearish vibe shift in recent weeks.

The tech trade has faltered since late summer, with the Nasdaq 100 down 6% from its peak in early October.

The iShares Semiconductor ETF is down 24% from its summertime peak, while the Roundhill Neocloud ETF has lost 40% since its mid-August peak.

Here are the risks market pros see from the Anthropic IPO.

1. More tech selling

When SpaceX was getting ready to go public, the fear was that investors could drain liquidity from one part of the market to pour it into SpaceX stock.

That didn’t quite play out, but the fear has cropped up again with Anthropic’s offering.

The idea is that, given the large amount of stock being issued and extreme demand for it, investors might sell other investments to make room for Anthropic in their portfolios, adding to the pressure already on the tech sector , Thierry Wizman, a division director at Macquarie, told Business Insider.

The selling pressure will likely be most obvious in areas related to AI already under some pressure, such as the chips or neocloud stocks, Wizman said.

The IPO will also drop into investors’ laps at a time when incumbent mega-cap tech giants are rushing to raise capital. As the debt market tightens this year, equity capital markets might be the route that companies opt to take. For example, Meta announced a $95 billion wave of stock offerings on Monday to fund its AI projects.

“I don’t think it is a coincidence that Meta announced its $95 billion equity financing plan around the same time as Anthropic’s IPO plans,” Alexander Lis, CIO at investment manager SDV, said. “It seems that companies are increasingly concerned about the market’s capacity to absorb the upcoming wave of AI-related equity issuance. Meta may be trying to secure funding ahead of Anthropic, just as Google did before SpaceX.”

Investors have likely already started moving funds around, Art Hogan, the chief market strategist at B. Riley Wealth Management, said, adding that he expected a more gradual pressure on inflows in other sectors, as opposed to a sharp sell-off.

Stock issuance is broadly expected to surge in the next year as more companies go public, insider shares get unlocked for sale, and secondary offerings increase. Equity supply rising relative to demand is another factor that could push down equity prices.

“Growing competition for investor capital could become a meaningful headwind for technology stocks,” Lis said.

An IPO flop

Hogan said he was more concerned about the risk that bankers price Anthropic’s IPO too high, leading shares to drop as trading begins.

That happened in South Korea last week, with the neocloud firm Elice plunging 32% on its first day of trading as investors balked at a high valuation. The drop sparked another round of selling in the neocloud sector, spilling into the chips and broader AI space as well.

SpaceX’s IPO rose early on but flailed for months. Shares dropped as much as 32% from their first day of trading through their trough in late July as the hype for the rocket company fizzled out. The stock is still down around 7% from its first-day closing price around $160 a share. The Facebook IPO in 2012 is the poster child for what a rocky IPO could look like, something that investors feared for SpaceX before its debut.

“The follow-on demand for it can actually skew the actual reasonable valuation that it should be trading at. So that would be my biggest concern,” Hogan said.

Concentration risks

Finally, Anthropic going public would skew the market even more toward mega-cap tech, adding to concerns that the bull market is a mirage generated by the good fortunes of a few companies.

Bret Kenwell, a US investment and options analyst at eToro, told Business Insider, that, should Anthropic be valued at $1.5 trillion, it would boost the market cap of the 10 largest US companies to over $29 trillion. All of those firms would be associated with the AI trade, as Anthropic would push Warren Buffett’s Berkshire Hathaway out of the top-ten category.

The tech sector now accounts for around 40% of the total value of the S&P 500.

“Ten years ago, the market didn’t have a $1 trillion US company,” Kenwell said.

Kenwell pointed in particular to the high level of scrutiny over how AI firms are financing their growth through debt, a potential catalyst for widespread selling.

“If that scrutiny continues to intensify, valuations across the sector could come under pressure — including companies like Anthropic that are already valued so highly,” he said.