Ackman: Anthropic may be 'the story of this century'. Why he is sitting out the IPO?

Bill Ackman, who runs asset manager Pershing Square Capital, called Anthropic “perhaps the most amazing business story of this century.” However, he does not plan to buy shares soon after the upcoming IPO, reports Yahoo Finance, which interviewed him.

Pershing Square sees itself as a group of “very low-risk investors” and wants to invest in businesses whose performance it can predict “with a very high degree of confidence,” Ackman said. Anthropic, he thinks, “could be worth a lot more, a lot less, depending upon a few variables that are difficult to predict.” “And that's why it doesn't fit into our portfolio,” he added.

Ackman considers Anthropic a “more speculative bet” than, for example, payments network Visa, whose shares Pershing Square owns. He said shares of mortgage giants Fannie Mae and Freddie Mac, which investors have “completely discarded” this year, are his favorite position in terms of risk and reward. Pershing Square has held the stocks for 13 years and expects to profit when the companies eventually exit government conservatorship and are privatized again.

The Yahoo Finance interviewer pointed out that Anthropic is losing billions of dollars, has negative free cash flow, and may have to raise more money. He asked how to value such a business. Ackman said Anthropic was close to achieving “real operating profitability” and might already be there. The company’s net loss was $104 billion for the nine months ended September 30, according to its prospectus. Most of that was a paper loss stemming from changes in the fair value of convertible notes and derivative liabilities, CNBC reports.

Ackman reckons the business model would face “real questions” if Anthropic lost its lead. The company therefore has little choice but to keep up the capital spending needed to stay ahead, he said. Like any company, Anthropic can be valued by modeling its future cash flows, but the model is “much more complicated” to build than one for a hypothetical manufacturer whose unit sales rise a steady 5% each year, in Ackman's view. Anthropic faces a much wider range of possible outcomes than such a manufacturer, he added.

Anthropic is set to price its IPO on November 18, with shares due to begin trading on the Nasdaq on November 19 under the ticker symbol ANT. The top of its price range of $70-78 per share implies a fully diluted valuation of about $1.4 trillion. Freedom clients have had early access to Anthropic shares starting Thursday.

The underwriters plan to price the IPO above the top of the range after seeing strong demand, the Financial Times reported this week. Morningstar analysts put Anthropic’s fair value at $1.7 trillion, while traders in off-exchange markets are trading futures contracts at $98 per share.