Anthropic Faces a ‘Junk’ Rating for Its Debt Post-IPO

Editor’s note: Anthropic recently filed for its IPO. 

And while everyone is scrutinizing its growth and plan to actually turn profits going forward, one major money manager is looking at its debt.

The conclusion of that could have a ripple effect on everything from AI to crypto. 

Here’s what Crypto Managing Editor Beth Canova just told readers …

By Beth Canova

One of Wall Street's biggest names just raised a red flag about one of the hottest IPOs of the year.

According to the Financial Times, Blackstone (BK, “C”) has told its investors that Anthropic (Pending: ANT) may not earn an investment-grade credit rating when it goes public later this year.

Source: Financial Times.

That's a big deal.

Anthropic is the firm behind Claude, one of the top rivals to ChatGPT. Its planned IPO has drawn talk of a $2 trillion price tag.

But now, one of the world's largest investment firms is raising doubts about its credit strength.

And it’s a change that could impact how investors view the entire AI boom.

A $2 Trillion Firm with a Credit Problem

First, let's clear up what an investment-grade rating means. When a firm borrows money, credit agencies look at how likely it is to pay that money back.

Firms with strong credit earn high grades. That helps them borrow at lower rates.

Firms with weak credit often pay more.

And some large funds can't buy their debt at all.

That's why Blackstone's warning matters: A firm can be worth a fortune on paper and still face real risks when it comes to paying its bills.

And Anthropic may be a prime example.

Anthropic brought in about $4.6 billion in sales last year … and also posted an $8 billion operating loss.

That's a huge gap. And it's not the only red flag.

Related story: Anthropic IPO — When You Can Buy ANT Stock (and 4 Surprises in the S-1)

Anthropic needs vast sums to build and run the data centers that power Claude. It must pay for chips, power, staff and more. And those bills don't stop when growth slows.

This is the core risk Blackstone's warning brings into focus.

Fast sales growth is great. But it means less if costs grow just as fast.

Weiss Flagged the Risks First

Our team raised doubts about Anthropic long before Blackstone's latest warning.

On Aug. 20, tech expert Jurica Dujmovic said there was a risk in Anthropic's $2 trillion IPO that Wall Street missed.

He warned that investors were too focused on sales growth. And no one was questioning whether Anthropic could turn that growth into lasting profits.

His main concern? Regulations.

In June, U.S. officials had forced Anthropic to cut off access to two AI models for anyone not in the U.S. Without a way to be selective, the company shut down all access for 19 days.

With the lost access came a new risk for the firm. Users are less likely to continue buying access to a product if that access can be shut off by Uncle Sam.

Even when the tech works, the law can get in the way. And that makes future sales harder to count on.

Still, Anthropic was set to be the biggest IPO of all time. So, our team continued to dig.

That led to my Oct. 13 update. New Constructs’ study put Anthropic's value near $144 billion. That's more than 90% below the $2 trillion figure being discussed.

To be clear, Blackstone has not endorsed that lower value. Nor has it made the same case our team did.

But its warning adds weight to the broader concern we've raised for months … 

The price investors hope to pay for AI's future may be far ahead of the profits these firms can earn today.

3 Ways This Could Hit AI Investors

The first risk is higher costs.

If Anthropic can't get an investment-grade rating, it may have to pay more to borrow. That would put more strain on a firm that already spends vast sums.

The second risk is a lower stock price.

Investors may start to ask why a firm with weak credit should command such a rich price. 

That doesn't mean Anthropic's IPO will definitely flop. But it could lead buyers to demand a better deal.

That brings us to the third risk. And it’s the biggest one.

The whole AI sector may face a new test.

For years, investors have paid high prices for firms tied to AI. The hope was that huge growth would lead to huge profits.

But what if those profits take far longer to show up?

Or what if the cost of building AI keeps rising?

Then investors may start to judge AI firms by cash flow, debt and profit — not just sales growth.

And that’ll impact more than just one AI IPO.

In fact, Dr. Martin Weiss and Nilus Mattive just put together a special presentation that details the impact of all this debt and solutions you should take before markets really pay attention.

What This Means for Crypto

There's also a lesson here for crypto investors. And that’s where my focus is as the Crypto Managing Editor.

But you’ll want to know how far this can spread even if you have never bought a single crypto.

Both AI and crypto are young fields with vast growth potential. And both can draw huge sums of money long before their best uses are clear.

We've seen how fast hopes and hype can push crypto prices up.

And we've also seen what happens when those hopes run ahead of real use and real cash flow.

The same rule applies to AI stocks and AI projects built on the blockchain.

A great new technology does not always make a great investment at any price. And a weak balance sheet can turn a strong growth story into a risky bet.

You need to be able to separate the projects riding on headline hype … and the ones that can turn its growth into cash.

That's how you can take part in the boom while keeping your risk in check.

You’ll also need the tools Juan Villaverde developed for timing these movements. 

In just one week, you’re invited to hear one of his biggest timing calls ever. Grab your spot while you can.

Best,

Beth Canova
Managing Editor, Weiss Crypto Daily