Anthropic IPO: Aswath Damodaran values AI startup at $1.47 trillion, flags governance risks

When Anthropic filed its 416-page prospectus on October 26, bulls and bears rushed to spin the numbers. Aswath Damodaran, the “Dean of Valuation,” chose a different path. He builds a story, attaches numbers, and lets readers disagree.

"The Anthropic IPO has useful information that both bulls and bears will spin to justify their priors," said Damodaran in his blog, Musings on Markets.

AI displaces high-paid white-collar work, creating a market worth $5 trillion or more. Anthropic, targeting the premium segment and perhaps expanding into pharmaceuticals, reaches about $1 trillion in revenue by 2036.

"In effect, Anthropic Pharma, or whatever they choose to call it, will then use its agents to do drug research and testing, displacing the companies that currently provide this service, and reap at least a portion of the revenues from the drugs they develop," he said.

Blending premium (40 per cent) and mass-market (10 per cent) margins give 32.5 per cent, trimmed to 27.5 per cent for regulation. Anthropic will need to invest about $1 for every $3 in additional revenues, going forward, said Damodaran. That would be in line with what technology companies are generating as revenues per dollar of invested capital today, but with the leap in revenues that Anthropic is forecasting, it will translate into large dollar reinvestments each year. While the cost of capital is 9.74 per cent, there is a 10 per cent chance of failure.

Anthropic is targeting the premium market, as reflected not only in its current revenue breakdown, with almost 80 per cent from enterprises paying based on usage, but also in its focus on using its newly acquired compute power to build next generation models rather than service current clients, read the blog.

The results into $1.475 trillion in equity, just under the $1.5-2 trillion offer range. His extremes are dramatic, from negative $373 billion to $4.04 trillion.

Damodaran is blunt about governance. And the biggest concern is five share classes and founder voting control. He argued that needs a higher discount.

"This company has decided to exhaust the alphabet in terms of share classes," said Damodaran. "If you, as an investor, have had bad experiences with top management at companies using corporate responsibility and ESG as cover for self-serving activity and hypocrisy, the Anthropic structure is that structure on steroids."