Is Anthropic’s $1.5 Trillion Valuation Too Rich?

AI stocks start to rebound after yesterday's bruising day for markets. We'll look at how that sell-off has investors increasingly skeptical that Anthropic's IPO can reach a trillion and a half dollar valuation. And we'll take a peek at the email correspondence allowing some ship captains safe passage in the Middle East. And the Houthis, if they do reply, they reply very, very fast. And then they would just say, very professionally, dear captain, so-and-so, we're glad that you understood the transit terms. And then the Houthis will give the captain a permit. It's Friday, November 6th. I'm Luke Vargas for The Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today. We are exclusively reporting that major investors planning to participate in Anthropic's upcoming IPO no longer believe it can hit a targeted one and a half trillion dollar valuation, given the market's ongoing sell-off. Instead, one of the investors says its valuation could be closer to one trillion dollars, while another wondered if the company might delay its listing to wait for more favorable conditions. Berber Jin covers the AI industry, and he reports that Anthropic executives and its advisors are expected to meet in the next few days to discuss its IPO plans, and they face a tough set of options. If the company chooses to proceed with its IPO, it could raise a lot less, than it initially set out to raise, and its valuation could come tumbling down if the market isn't receptive to the company. But if it delays the IPO, that could set back the company's plans and potentially spook the market even further. We've spoken to multiple investors that are set to back Anthropic, who have privately expressed skepticism about Anthropic being able to pull off the IPOS plan, and it'll be really interesting to see what Anthropic's executives decide to do. They're set to kick off their roadshow with investors next week. Anthropic was planning to mount its IPO before Thanksgiving, which means that the company only has a few days to decide what to do given the new market reality. Anthropic's eventual decision could be swayed by investor sentiment, including updated financials, as our Ben Dummit explains. Investors will be looking for important benchmarks in helping them determine what kind of valuation Anthropic reasonably deserves. One of those will be its so-called run rate, which is a metric used to estimate annual revenue for these type of companies, and it topped $80 billion at the end of October. The other thing we'll be looking for is to see what kind of size of offering that Anthropic targets to achieve a higher valuation. The more they try to raise, the harder it might be to achieve the utmost or the top end of any valuation. By lowering the size of the offering, that could help them attain a higher valuation if they chose to do that. There are certain investors that, want Anthropic to maximize the amount of money they can raise in an IPO because they want to make sure that Anthropic, it has a very healthy balance sheet. We reported that one investor hopes the company will have, you know, well over $200 billion on its balance sheet post an IPO. Anthropic had about close to $147 billion in cash on hand as of September 30th. Both private and public market investors are now worrying about collateral damage that could stem from a potential change in Anthropic's IPO plan. Especially given the interconnectedness of its business with some of the biggest names in tech, including Google, Amazon, and Nvidia. It's a bellwether of the sector in terms of the promise of what AI can or could deliver over time. So from that perspective, if it falls short of expectations or if it has to pause, you know, the idea of going public now, that's going to disappoint investors' view over all of the sector, whether they're publicly traded companies or other companies, private companies, that are looking to go public. Just because Anthropic was seen as a no-brainer and if it can't do an IPO on the terms that it thinks it deserves, then investors are going to question how they value AI-related companies. And that's going to really sort of weigh on the sector until people get a clearer view of what these companies are worth. Well, that Anthropic news appears to be exacerbating the AI sell-off that led to a historic drop in the Nasdaq last night and is now wreaking havoc on European and Asian markets, as finance editor Peter Landers explains. The Nikkei average in Japan is now in bear market territory. It's fallen more than 20% since its peak in June. And South Korea's main stock index is actually down 44% since the peak in June because so many companies in those two countries are dependent on the AI boom in the U.S. SK Hynix and Samsung Electronics, these are big memory chip makers. And basically, wherever those two companies go, that's where the entire South Korean stock market goes. I think as in so many market sell-offs in the past, it feeds on itself. And there was a little uncertainty right after the election whether this is really bad for the AI industry or not. And once the consensus seemed to form around the idea that it is bad and there may be significant hurdles to building more data centers, especially in the U.S., states like Texas that elected a new Democratic governor, I think it fed on itself. And anyone who had been thinking about selling at the top or getting out before it's too late thought a lot harder about it and losses fed more losses. Stock markets around the world, including Japan, South Korea, Taiwan, the United States, and many other countries are up over the last few years. It's just that the exuberance we saw for parts of this year is definitely over. For now, U.S. futures are pointing to a rebound in tech stocks, though whether that'll hold throughout the year or the trading day remains to be seen. For more of our markets coverage, check out WSJ.com throughout the day. Oil is on track for a week of losses as investors focus on what happens next between the U.S. and Iran after the midterms. At the same time, Iran-backed Houthi rebels in Yemen continue to control the crucial Bab el-Mandeb Strait, heavily curtailing Middle East oil exports. However, oil reporter Rebecca Fung found out that the Houthis, have been allowing safe passage to some ship captains who drop an email to the militant group's little-known clearance office. In early 2024, they set up an administrative entity, and that entity is called the HOCC, or the Humanitarian Operations Coordination Center. And the ship owners and the captains of ships were told to send an email to this entity to basically ask for permission and kind of give the Houthis a heads up before they cross the strait. Very formally, in kind of maritime language, it goes something like, Dear Sirs, I'm the master of this ship, and we formally declare that we have no connection to the U.S., U.K., and Israel. And then there are times when they would volunteer other information such as, was the cargo, was the crew nationality, was the flag, was the port of entry, was the last port of call, just to give the Houthis a heads up. And the Houthis, I was told by the captains, if they do reply, they reply very, very fast. Usually within 24 hours or so. Rebecca says that what stands out from the correspondents is the level of professionalism when the Houthis respond. Again, very professionally, Dear Captain, so-and-so, we hope you're well. We're glad that you understood the criteria for the vessel bands, for the transit terms. And then the replies from the Houthis actually included a 24-7 hotline and an email alert service that you can subscribe to, and they invite you to subscribe and I did subscribe to the email alerts, but I haven't received any alerts yet so far. Russia has seized control of four factories belonging to Japan Tobacco, escalating a retaliatory pressure campaign against Tokyo and the West over its support for Ukraine. President Vladimir Putin ordered the company's Russian assets placed under the temporary management of a local firm, sending shares of Japan Tobacco, which is part-owned by the Japanese government, tumbling 19% in Tokyo Japan Tobacco controls nearly 40% of the Russian market and generates roughly a quarter of its profit there. The seizure marks the latest in a string of asset takeovers targeting foreign companies that have remained in Russia. And shares of DraftKings are sliding after the sports betting company cut its outlook as it plows money into its prediction markets business. It's spending heavily there to try and compete with the likes of Kalshi and PolyMarket, including through customer promotions that have offered a lot of money to the company. It's also been able to offset most of its $650 to $750 million in new revenue. Coming up, President Trump faces a setback in his bid to remake the nation's capital. And we'll look at the grassroots campaign to save a British icon one phone call at a time. That's after the break. A federal judge has temporarily halted construction of President Trump's planned 250-foot, arch near Arlington National Cemetery, delivering a legal setback to one of his signature capital projects. The Justice Department contends that the arch, which would house military defenses like drones and ammunition, had national security justifications. But a U.S. district judge rejected that argument. And that ruling came as Trump yesterday designated the Oval Office and Cabinet Room as landmarks to prevent future presidents from changing them. While it's common for presidents to add their own style to the Oval Office, office. Trump has taken that to a new level, adding gold embellishments to the room. room from the ceiling to the walls. Trump said that his designation of the room as a federal monument is intended to preserve the space for future generations, and he suggested that further changes to it would need to be approved by Congress. And while the president looks to preserve his legacy in Washington, a tourist favorite in the U.K. is under threat of extinction. There's something quite nostalgic about hearing the hum of an open line on a telephone. That's the journal's James Hookway, who says the iconic red phone boxes, which visitors love to take photos of and in, are disappearing. The phone company BT is decommissioning many of them because there really isn't the need, particularly in some urban areas. Many of them have been repurposed, twist into being mini lending libraries, coffee kiosks, even an off-license, which is a British term for a liquor store. As for the others, James says a campaign has emerged to save them one coin at a time. Some activists are seeking out vulnerable phone boxes in particularly remote locations, and they are going there with big bags of coins. And the idea is to make 52 calls from each of these phones. Now, 52 calls is important, the equivalent of a call a week, because that's the minimum threshold required for the regulator to tell the phone company, hey, you can't close it down. This phone is being used. So there's a campaign to keep them going, but the clock is ticking because BT is retiring the old analog copper wired phone network in the U.K., supposedly next year, and they're going to replace the phone boxes where appropriate. With 5G battery backup systems in place instead. And that's it for what's news for this Friday morning. Today's show was produced by Daniel Bach and Hattie Moyer. Our supervising producer was Sandra Kilhoff, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend. Thanks for listening.