Key Points
On June 1, the artificial intelligence (AI) start-up Anthropic announced it had confidentially submitted its draft registration statement for an initial public offering to the Securities and Exchange Commission. That puts it firmly on the path to go public, which could happen before the end of 2026.
For retail investors, that will bring the opportunity to own a piece of the company that offers one of the most advanced AI models on the market, Claude. But after seeing the price action of Space Technologies Exploration shares since its IPO, some investors may be feeling extra cautious about buying shares of another company just after its debut. They may recognize the upside potential of Anthropic, but also want to limit their risk.
One strategy that could offer a solution is to invest in well-established tech companies that already hold stakes in Anthropic, such as Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
Amazon gets a stake and potentially $100 billion in revenue
Amazon has been an investor in Anthropic for several years. It had already pumped $8 billion into the start-up before its latest investment agreement in April. At that time, it upped the ante by agreeing to invest an additional $5 billion immediately, and up to $20 billion more over time, with purchases tied to the start-up achieving certain milestones.
The stake it had built up earlier was valued at $74 billion in April, so Amazon has already profited handsomely. It’s also doing well already from its follow-on investment of $5 billion. Anthropic had a valuation of $380 billion at the time. But by its May financing round, Anthropic’s valuation had ballooned to $965 billion.
Aside from its investment, Amazon can also benefit from Anthropic being one of its customers. Over the next 10 years, Anthropic says it plans to spend over $100 billion on Amazon Web Services technologies.
Alphabet wants a slice of Anthropic
Alphabet invested in Anthropic in 2023, acquiring a 10% stake in the company for around $300 million. A few months later, the tech giant invested another $2 billion, reportedly raising its stake to 14%.
Its next big investment came this past April, when Alphabet announced it would invest up to $40 billion in the company. Of that $40 billion, $10 billion was to be invested immediately, with $30 billion more to follow if Anthropic meets certain performance milestones.
Alphabet also has a partnership with Anthropic, as it provides customers access to Claude through Google Cloud. Plus, Anthropic has secured more compute capacity through Alphabet.
The benefits of investing in established tech giants
Anthropic is rapidly growing its revenue: It’s expected to report sales of $10.9 billion for the second quarter. If it reaches that total, not only would it be a profitable quarter for the start-up, but it would also be more than double the $4.8 billion it reportedly generated in the first quarter.
There is plenty of upside potential with Anthropic, but there’s also plenty of risk due to increasing competition, rising infrastructure costs, and a lofty valuation that may be difficult to sustain. That’s why some investors may be looking to sidestep those issues through investing in Amazon and Alphabet.
Both tech giants are already established, so they won’t experience the volatile price swings Anthropic is likely to face when it first starts trading. And because they have established themselves in an array of businesses, they aren’t reliant on Anthopic’s success.
If Anthropic ultimately proves to be a successful business, it won’t just benefit Amazon and Alphabet through their direct stakes in the company, but also through the deals and partnerships they have established with it. Amazon and Alphabet also have safety nets built into their investment plans: Each company will only invest more money in Anthropic when it meets certain milestones.
If Anthropic fails, it will sting for Amazon and Alphabet, but the tech giants will still be in business. In comparison, an investment in Anthropic alone will be entirely dependent on that company’s performance. The potential gains could be rewarding, but the potential losses could be painful.
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Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.
