Is the Anthropic IPO the Netscape moment for AI?

AI bubble or bust - Anthropics IPO might just hold the answer

In August 1995, Netscape went public just 16 months after inception. Leading up to the IPO, shares were going to be offered at $14 but this was doubled at the last minute to $28. On day 1 of trading, shares hit $75 before settling at just over $58 giving Netscape a valuation of ~$3bn.

This single public offering kicked off the dotcom boom. A public hungry for access to any of these companies bid them up to insane values. For those that weren’t there, let me show you how crazy it was by pulling an excerpt right out of Devil Take the Hindmost, a super interesting book about investment manias over the ages:

“The market capitalisation of Yahoo! was 800 times its earnings and over 180 times its sales revenue, or $35m per employee. The share price of Amazon.com multplied 18 times during 1998. When theglobe.com, an internet chat service, was floated in mid-November, its shares rose a record-breaking 866 percent on the first day of trading. When Marketwatch.com was floated, it offered shares to investors at $17 and closed on the first day at $97.50.”

The dotcom bubble was crazy. But could an AI bubble beat it, and will the Anthropic IPO be the catalyst? There are really two scenarios that I can see happening:

Scenario 1: A public starved of the chance to invest in AI clamours for the stock, boosting it beyond even the Netscape bump. VC’s who’ve been in a liquidity desert for a few years now push their highly valued AI investments to go public even for those who definitely aren’t ready for it. For a while, the public continues to eat it up, focusing on growth potential the same way the 90’s public focused on page views. But at some point, as with all bubbles, it will burst and come down to Earth. This doesn’t mean that AI won’t be a thing, the same way that the dotcom bust didn’t stop the internet being a thing. It just means that it might not be as big of a thing YET.

OR

Scenario 2: The public balks at missing out on all the value - it’s one thing investing in Netscape at around $1bn. It’s another thing being asked to buy Anthropic at ~$500bn (last private valuation was $350bn). Demand is less than anticipated and the stock doesn’t drop like a stone but it trades normally, at a reasonable P/E ratio. This P/E ratio sets the market for later stage AI investing and we see a bubble deflation (not bursting) as VC’s stop investing for crazy growth and start investing like boring B2B SaaS investors of yore - valuing margins, profitability, churn etc. Early stage investors take their cues from this and start to act more rationally when it comes to AI deals.

Everybody with even a single dollar invested in the private tech markets is hoping for a pop. Concrete proof that this “AI thing” isn’t just hype but produces real, lasting companies, with real revenue. The ideal scenario would be pop followed by rationality but us humans remain irrational to our last. My personal take is that animal spirits will take over and the average retail investor will bid the shit out of AI stocks. At least for a while.

If you’re thinking about following the trend and jumping ship before it implodes or even being contrarian, remember the old axiom: “The market can remain irrational longer than you can remain solvent”.

It’s about to be a wild ride. Buckle in.