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Should I buy Anthropic on Day 1 when it IPOs?
On Friday, our Chris Wood broke down how a company almost nobody had heard of three years ago became the fastest growing business in history… and why he thinks it’s a better bet than OpenAI when it eventually goes public.
If you missed it, catch up here. It’s one of his best.
But here’s what I want to address today: Should you buy Anthropic right away when it goes public later this year?
My answer: probably not. And the reason why is one of the most important lessons in all of IPO investing. Let me explain…
First just look at this chart.
As you can see, it took Microsoft took 43 years to reach an $800 billion valuation. Apple took 42 years. Tesla took 18.
Anthropic did it in 5.
That’s not a typo. Five years. Faster than any company in history, including OpenAI, which took 10.
This is why everyone wants a piece of it. And this is exactly why you need to be careful.
Great company. Bad IPO. It happens more than you think.
May 18, 2012. Facebook goes public at $38 per share.
The most anticipated IPO in years. A company everyone knew. A business that was already printing money. The talk of the investing world.
The stock barely moved on Day 1. Within five months it had been cut in half — down 54% from its IPO price.
Barron’s ran a famous “thumbs down” cover. Many disgusted investors left the stock for dead.
The investors who waited?
In August, Facebook stock stopped falling and began to “carve out” a bottom.
By November, the bottom was complete, and the stock began to march higher.
If you’d waited to buy Facebook until three to six months after its IPO... you could’ve paid $18-20 per share.
Which is roughly half the price that investors who bought at IPO paid.
Because you paid half price, you could have collected a gain of more than 1,000%—more than double what anyone who bought at IPO earned!
That’s the pattern nobody talks about during IPO hype cycles. Great companies can be terrible IPOs. And the investors who understand the difference are the ones who come out ahead.
Why does this happen?
Hot IPOs often price in years of future success on Day 1. First-day buyers pay the maximum hype premium — the price that reflects everyone’s excitement, not just the business fundamentals.
Then reality sets in. Early investors who’ve been locked in for years finally get to cash out. Insiders sell. The hype hangover kicks in. The stock slides.
And patient investors… the ones who watched from the sidelines… get to buy the same great business at half the price.
Square followed this pattern. Dropped 35% after its IPO. Then surged 1,200% over the next two and a half years.
Software company Domo dropped 48% after its IPO. Then surged 211% in four months.
The pattern repeats over and over. Great business. Rough IPO. Patient investors win.
What does this mean for Anthropic?
Anthropic just confidentially filed its S-1. The IPO is coming later this year.
The FOMO is going to be real. This is now one of the most talked about companies on the planet. Every investor, every institution, every financial media outlet will be screaming about them when they go public.
And that’s exactly when you need to be most careful.
Chris Wood laid out his thinking clearly in Friday’s piece… Anthropic is a strong business, a better option than OpenAI (which he also discussed). It has the enterprise focus, the API flywheel, the path to profitability. He believes in the long-term story completely.
But he says to be patient.
If you want to get smarter on Anthropic’s actual business before the IPO hype machine kicks into full gear, start here.
Related: SpaceX Is Up 19% Since Its IPO. Here’s Why We’re Not Buying It