The market for initial public offerings (IPOs) in the U.S. has certainly picked up this year. But it’s going to get a massive lift as four artificial intelligence (AI) companies attempt to raise hundreds of billions of dollars, potentially all during this year.
SpaceX will kick off its IPO shortly. Alphabet (GOOG +0.45%)(GOOGL +0.53%) has filed paperwork for a secondary stock sale that will raise tens of billions of dollars, and Anthropic and OpenAI have also filed for IPOs. If all are successful, they could raise more money than U.S. IPOs have collectively raised over the past five years.
Investors should consider adding two of these companies to their portfolios, but the other two, they should watch from the sidelines.
Image source: Getty Images.
Four AI companies could collectively raise $370 billion
SpaceX is gearing up for a $75 billion IPO that is reportedly 4 times oversubscribed, as of this writing. In addition, the underwriters have the option to purchase an additional $11.25 billion in shares for up to 30 days after the listing, which could certainly happen.
Alphabet has filed paperwork for new stock sales that will raise almost $85 billion, including a $10 billion purchase from Berkshire Hathaway. This fundraising process looks to be well underway, although $40 billion worth of the stock will be sold via an at-the-market (ATM) offering that is not expected to begin until the third quarter.
Anthropic and OpenAI have just confidentially filed for IPOs with the Securities and Exchange Commission (SEC), but at this point, it’s still unclear how much they intend to raise. Earlier this year, OpenAI completed a $122 billion private financing round that valued the company at $852 billion. Anthropic recently raised $65 billion in a private financing round that valued it at $965 billion. I suspect each could target IPO stock sales in the $50 billion to $100 billion range. That means that together, these four companies are likely to raise anywhere from $270 billion to $370 billion in capital this year, most of which will be used to fund AI infrastructure.
Over the past five years, U.S. IPOs have raised a total of $267 billion, according to Dealogic and Ernst & Young:
2021: $155.8 billion
2022: $8.6 billion
2023: $22.2 billion
2024: $33 billion
2025: $47.4 billion
Investors should consider Alphabet and Anthropic
The first stock in this group that investors should consider buying is Alphabet.
Trading at about 25.5 times forward earnings (as of June 9), the stock’s valuation is well above its five-year average. Analysts also expect the company’s high level of capital expenditures to push its free cash flow into the negative realm for the next few years.
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While Alphabet shares could fall significantly if the AI trade struggles, I expect the company would be able to navigate difficult market conditions. Google still reportedly controls 85% to 90% of the traditional online search market. Its large language models (LLMs) are among the industry leaders, and the company has many other great businesses, including cloud infrastructure, custom AI chips, YouTube, and Waymo.
The other company in this group I see potential for is Anthropic. While investors haven’t yet seen the company’s registration statement, which will provide in-depth information and financial data, media outlets have reported that the company’s annual revenue run rate is nearing $50 billion and that it could generate an operating profit this quarter.
Furthermore, the company has a higher valuation than OpenAI and does not appear to be as stretched in terms of data center commitments. Claude has also caught up with ChatGPT in terms of popularity, and at times this year has held the No. 1 spot in Apple‘s App Store.
OpenAI’s registration statement is not yet public either, but media reports indicate the company aims to spend $600 billion on its data center build-out by 2030. The company is also reportedly years away from profitability and, as of earlier this year, was struggling to hit key internal revenue targets.
Finally, SpaceX goes public on Friday. The company has some compelling businesses with tremendous potential. The stock may very well be a buy at some point, but I would actually recommend investors wait before purchasing the shares.
Over the next six months, SpaceX shares will flood the market as lock-up provisions expire and insiders and employees are allowed to sell. This is also really the market’s first big test for these huge capital raises. I think the stock will likely be cheaper in six months, after investors have more time to learn more about SpaceX’s vision and how it plans to execute on its grand ambitions.
