Stock markets were getting excited about the looming Anthropic flotation, following all the fun surrounding the Space Exploration Technologies Corporation, or SpaceX (NASDAQ: SPCX) stock IPO. They may have jumped the gun.
Plenty of people were worried about a potential AI bubble before SpaceX floated in June, but the IPO generated its own momentum.
SpaceX shares floated at $135 and closed their first day at $160. They rocketed to an all-time high of $225.64 on June 16, briefly valuing Elon Musk’s rocket company at close to $3trn.
Are we in an AI bubble?
I already had exposure through Scottish Mortgage Investment Trust, which bought an early stake in Musk’s venture. But I would have sat out the IPO anyway, believing it would take time for SpaceX shares to settle and establish some kind of measurable value. I still don’t think we’re there yet.
Investors were gearing up for more action as Claude chatbot developer Anthropic moved closer to its own launch pad. Many will be having second thoughts today, as AI and US technology stocks plunge across the board.
The S&P 500 slumped 4.4% on Thursday (November 5), wiping out trillions of dollars in market value. SpaceX shares fell 9% on the day and are down around 26% over the past month.
Even before the sell-off, there were concerns about Anthropic, which has committed almost $900bn to computing and infrastructure, while continuing to report hefty losses.
Anthropic had been targeting a November flotation valuation of around $1.5trn. Some prospective investors now reckon $1trn is more realistic, while others doubt about whether its planned IPO timetable can hold, given current market turmoil.
At The Twelfth Magpie, we often like buying shares on bad news, seeing it as an opportunity to pick up good companies at temporarily reduced prices, then sit back and wait for them to prove their long-term value.
But it depends on the stock. It’s much harder to do that when there’s no reliable way of measuring what a company’s really worth.
I’d steer clear of Tesla talk
SpaceX is still valued at around $1.7trn, despite recent falls. Personally, I’ve been put off by talk of Musk potentially merging Tesla into SpaceX to create one supersized conglomerate. I think Tesla has shot its bolt and wouldn’t consider buying its shares today. Nor would I want to buy another company that might swallow it.
Investors considering SpaceX should approach with caution, even after the recent reversal. And right now, I’d say exactly the same about Anthropic, assuming its IPO goes ahead.
Many investors already have all the US technology exposure they need after the extraordinary gains of recent years. This sell-off could create opportunities but it might also have further to go.
The technology sector has suffered painful setbacks before and recovered. But AI’s demanding extraordinary amounts of money, land and energy, while US models face competition from cheaper Chinese rivals. I wouldn’t consider either Anthropic or SpaceX right now.
I’m not writing off the AI revolution. But in my view, it’s time for investors to tread carefully. Bargain hunters might find this FTSE 100 growth stock offers better value after recent falls…
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Harvey Jones owns shares in Scottish Mortgage.
