Strategist who warned of selloff sees Anthropic IPO as bigger event than midterms

The potential U.S. stock market debut of Anthropic, the world’s most valuable AI start-up, could prove more consequential for markets than outcome of the U.S. midterm elections, says HSBC Holdings strategist Max Kettner. He was one of the few on Wall Street to downgrade U.S. stocks ahead of the selloff that roiled markets on Thursday, Bloomberg notes.

Anthropic’s IPO in two weeks, if it goes ahead, will probably be the event that clears risks surrounding lofty AI valuations and the prospect of further selling in AI stocks, HSBC Holdings strategist Max Kettner reckons.

“The best case would probably be you come, but you come with a $1 trillion valuation instead of $1.5 trillion valuation,” Bloomberg quoted Kettner as saying. “You come with a reasonably low valuation, such that in the secondary market you actually start rallying. Or at least not dumping 20-30% in the first week – because that obviously would be horrible.”

Anthropic’s planned IPO faces several hurdles, Bloomberg writes. The selloff in AI stocks has made market conditions less forgiving. Meanwhile, a changing of the guard in Washington could shift expectations for Anthropic’s ability to navigate the political landscape, Bloomberg adds.

Ahead of the start of formal IPO marketing next week, prospective buyers are discussing a valuation of $1.2-1.3 trillion for the AI developer, sources told Bloomberg. Some investors are weighing a valuation as low as $1.1 trillion, one of the sources said.

One factor that could limit the valuation is its competition with OpenAI for the higher market value, Bloomberg writes. Anthropic overtook OpenAI in May when a funding round valued it at $965 billion. OpenAI is now seeking new funding at a valuation of $1.25 trillion.

Valuation expectations for Anthropic’s IPO have shifted several times. In September, a leaked prospectus pointed to a target market capitalization of more than $2 trillion. By mid-October, some investors had lowered their expectations to around $1.5 trillion amid slowing revenue growth: third-quarter revenue rose 50% year over year to $16.8 billion after more than doubling in the previous quarter.

Kettner made a name for himself in recent years as one of the first strategists to call the current bull run, Bloomberg writes. Last month, however, he cut his equity exposure for the first time in months, citing sharp swings in market sentiment ahead of the midterms. He was one of the few on Wall Street to downgrade U.S. stocks before the selloff that rocked markets on Thursday, Bloomberg notes. Two weeks ago, he dropped his bullish call on U.S. equities and moved to a neutral stance, arguing that the narrative around tech had turned unfavorable regardless of how companies approached capex.

Kettner drew a parallel between the current environment and January-February 2018, when investment products tied to volatility imploded. He warned that the current selloff looked more like a liquidation driven by the unwinding of momentum strategies than a genuine reassessment of companies’ fundamentals.

The strategist believes the AI trade remains fundamentally intact despite this week’s heavy selling. He expects hyperscaler stocks to find a floor, since increasingly scarce computing capacity and rising rental costs benefit companies that already have capacity to rent out to customers. Semiconductor stocks could also, at some point, “rip 20%, 30% in two days just because they squeeze higher,” he said, referring to a potential short squeeze. He acknowledged, however, that he did not know when that might happen.