Anthropic’s IPO Will “Suck a Massive Amount of Money” From AI Stocks, Cramer Warns
Key Takeaways
Meta Platforms launched $35 billion in stock offerings on Monday and plans a separate $60 billion stock-selling program in 2027. On the same day, Anthropic reportedly planned to make its IPO filing public.
Jim Cramer warns that Anthropic's IPO could draw money away from other AI companies, including Nvidia, Microsoft, Amazon and Alphabet.
Nvidia's forward price-to-earnings ratio (P/E) is 17 times expected earnings, the lowest level in its three-year range. Meanwhile, analysts have raised their estimate of Nvidia's fiscal 2028 earnings per share by 25% since the end of June.
Microsoft may be more exposed to this pressure. Its forward P/E is 27 times expected earnings, while its lowest level over the past three years was 19 times.
Investors in AI companies are about to be asked to put a lot more money into the market.
On Monday, Meta Platforms (META:NASDAQ) launched $35 billion in stock offerings. That same morning, Anthropic planned to make its IPO filing public, Bloomberg reported. The company behind Claude reportedly expects its IPO to be as large as SpaceX's or even larger.
Nvidia (NVDA:NASDAQ) also wants to take part in Meta's stock offering. It is one of three chipmakers that said they might buy up to $5 billion of Meta's new shares. However, none of the three companies has made a firm commitment.
Jim Cramer saw this problem coming. On Mad Money a week ago, he warned that Anthropic's IPO would "suck a massive amount of money away from the rest of the group" because Anthropic is such a large company.
That group includes Microsoft (MSFT:NASDAQ), Amazon (AMZN:NASDAQ) and Alphabet (GOOG). All three companies are scheduled to report earnings this week.
And Meta is only getting started.
Meta's share count is headed the other way
For years, Meta has reduced its diluted share count, which measures the number of shares that could be outstanding after accounting for certain other securities. The number fell by about 10% from fiscal 2021 to fiscal 2025, reaching 2.57 billion shares.
Now Meta is increasing the number of shares it offers. The new deals include $22.5 billion in Class A shares and about $12.5 billion in preferred stock that must convert into shares. Meta also plans a separate program to sell up to $60 billion in stock at market prices in 2027.
Meta expects to spend $135 billion to $145 billion on capital investments this year. It plans to pay for this spending with cash from its business operations, debt that meets investment-grade standards, partnerships and new stock.
Daniel Niles, a longtime technology investor, pointed out on X that Meta said in a recent filing that companies are competing for the same pool of money. In his view, that pool "no longer seems endless like it did back earlier in the year."
Timing also matters. Aleph co-founder Mike Eisenberg posted that large technology companies selling stock now "also gotta beat the big IPOs to Market." In other words, they need to attract investors before major IPOs compete for the same money.
The squeeze shows up in the multiples
When more shares are offered for sale but investors have the same amount of money to invest, investors may pay less for each dollar of expected company earnings, even if those earnings remain strong. Nvidia's forward P/E ratio has already fallen to the lowest point in its three-year range.
Nvidia's forward P/E is now 17 times expected earnings. That is well below its three-year average of 30 times and far below its peak of 47 times in June 2024. During the same period, analysts have raised their estimate of Nvidia's earnings per share for fiscal 2028 by 25% since the end of June, bringing it to $15.92.
Microsoft's share price has more room to fall, based on this measure. Its forward P/E has risen from its June low but remains below its three-year average.
If Anthropic attracts a large share of the money investors have set aside for AI, Microsoft's P/E ratio could fall closer to its three-year low of 19 times expected earnings.
A hot Anthropic IPO helps the cloud giants
However, Cramer's argument also has a positive side. He said a successful Anthropic IPO "will give investors much more confidence that the AI data center theme has legs." In other words, it could make investors more confident that demand for AI data centers will last.
Amazon and Alphabet have the most at stake. Cramer said their "cloud growth is hostage to Anthropic." Both companies also own parts of Anthropic, so a strong IPO debut could increase the value of their investments.
Amazon reports its earnings on Thursday. Its cloud business results will provide the first major test of how well Anthropic's spending is holding up.
My view is that, for publicly traded AI companies, the biggest short-term risk is the large amount of new stock entering the market, rather than a drop in demand. Nvidia's P/E ratio of 17 times expected earnings already seems to reflect a crowded market. Microsoft's ratio of 27 times does not seem to reflect that risk as much, so I would expect Microsoft to feel the effects of Anthropic's IPO first.
However, strong cloud business results this week could change that view. Once Anthropic begins promoting its IPO to investors, possibly as soon as the week of November 9, we will see how much money it actually attracts.
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