Anthropic's upcoming IPO serves as a test for the entire AI industry

The AI valuation reality check

The artificial intelligence startup world is reaching a critical moment where the high valuations of the past must be justified by market performance. Two major players, OpenAI and Anthropic, have both recently lowered their valuation expectations, creating unease in venture capital circles. This shift comes after weeks of selling in publicly traded AI stocks, leading many to believe the 'valuation party' is cooling down.

Market participants view Anthropic's upcoming listing as the ultimate pricing touchstone for the entire industry. A smooth debut where shares climb steadily could signal that the AI financing boom will proceed as usual. However, a disappointing performance could indicate that many smaller companies are going to go under as capital becomes harder to secure.

This shift in sentiment is already visible at the negotiating table for smaller firms. Investors are reportedly adopting more conservative revenue multiples when discussing new financing rounds. Instead of racing to back projects with unproven models, venture firms are now demanding more concrete evidence of business viability.

Scaling back the giants

Anthropic has decided to proceed with an initial public offering at a fully diluted valuation of $1.4 trillion. This figure is notably lower than the $2 trillion valuation that some investment bankers had previously expected. The company plans to raise as much as $64.4 billion, which would place it among the largest listings in history if successful.

The move follows a similar trend seen by its rival, OpenAI. During discussions for its most recent funding cycle toward the end of September, the ChatGPT developer originally aimed for a $1.4 trillion post-money valuation. Because of a cooling market and concerns that the price was too high, the company eventually dropped its target to $1.25 trillion and reduced the total amount it sought to raise by roughly one-third.

These two companies are large enough to move the entire landscape because they define the current AI boom. Data from Bloomberg Intelligence suggested that the combined investment pace of OpenAI and Anthropic could represent over one-third of all global startup funding. Because they have such complex webs of deals with chipmakers and cloud providers, any signal that their access to capital is narrowing will transmit through the entire supply chain.

The infrastructure cost problem

A core concern for investors during this recalibration is the massive gap between current revenue and long-term infrastructure commitments. Anthropic's annualized revenue reached $81 billion in October, but its commitments for chips, data centers, and computing infrastructure have climbed to nearly $901 billion. This suggests that capital expenditure is swelling at a pace that matches rapid revenue growth.

This imbalance is forcing a change in how the market views the long-term value of AI companies. While the market is not rejecting the long-term potential of the technology, it has lost patience with the old model of prioritizing valuation over actual revenue. Investors are now looking for a path to profitability that doesn't rely on endless cycles of high-priced funding.

The risk list for venture investors has grown longer in recent weeks. Factors contributing to this include a significant drop in AI stock prices, the possibility of sustained high interest rates, and a scandal involving Nvidia, a key investor in the sector. Additionally, the market expects that new U.S. political dynamics may raise the bar for building new data centers and securing essential computing resources.

Advice for the next wave

As the market waits for Anthropic's results, early-stage funds are already adjusting the advice they give to founders. Some firms are telling founders to raise as much capital as possible as soon as possible while working hard to control their burn rate over the next year. The goal is to ensure companies have enough cash to survive a period of potential market correction.

Other investment managers are urging portfolio companies not to delay fundraising even if the market feels uncertain. They argue that at moments when a moderate correction can be foreseen, cash is king. This reflects a shift from the proactive, unsolicited term sheets seen earlier this year to a more cautious, defensive posture for startups with thin or zero revenue.

For the broader industry, the significance of the Anthropic listing lies in the transfer of pricing power. The period of venture-led valuation races is ending as the public market takes over the role of setting prices. The survival of AI companies will now depend on how they perform in secondary markets, their ability to secure credit for data centers, and the revenue multiples they can sustain.