Anthropic faces market headwinds as its upcoming IPO approaches, driven by high valuation concerns and a deteriorating credit market for AI infrastructure providers.
While the company reported a $65 billion annual run rate in sales as of July, skepticism is mounting regarding its potential debut following its Oct. 26 filing of a public registration statement (S-1).
The company’s anticipated valuation carries risks that contrast sharply with its rapid growth. Anthropic’s trailing 12-month price-to-sales (P/S) ratio is expected to land between 75 and 100 at its IPO. This figure sits well above the threshold of a P/S ratio over 30, which can alert investors to an unsustainable bubble.
Historical volatility further complicates the outlook for tech-driven debuts. Data from Truist Financial shows that the average year-one maximum drawdown for the 30 hottest tech-driven IPOs since May 2012 is 55%. SpaceX, which completed a $1.77 trillion initial public offering on June 12, has endured a maximum drawdown of 54%.
Beyond valuation, a new red flag has emerged in the bond market as investors demand higher compensation to manage credit risk. While some firms utilize cash on hand to fund the development of large language models (LLMs) and AI infrastructure, most rely on debt. The growing debt burden is currently colliding with uncertainty regarding whether AI revenues will justify such enormous spending.
Credit markets are signaling trouble for various players in the AI trade through surging 5-year credit default swap (CDS) spreads. CoreWeave’s 5-year CDS has reached a record 982 basis points. Meanwhile, Oracle’s 5-year CDS spread has surged to approximately 263 basis points, and SpaceX’s has risen to approximately 203 basis points, both of which are at record highs.
This credit tension arrives as tech companies have issued nearly $500 billion in new debt this year to finance AI infrastructure, including nine US investment-grade bond deals worth at least $25 billion each. Oracle’s market-implied 5-year default risk has risen above 20%, compared with approximately 16% for SpaceX and more than 7% for Nvidia.
