Jumping Revenue, Big Losses and Many Risks: Inside Anthropic’s IPO Filing

— Anthropic files for an IPO that could beat out SpaceX as the biggest of all time. Plus, Brazilian markets crash after Lula's re-election win leaves investors stunned. And speaking of elections, we get into what's at stake for Israeli voters tomorrow. — Many Israelis feel that this is the most consequential election in Israeli history. They feel it's a battle for Israel's soul. It's about the future direction the country will take. — It's Monday, October 26th. I'm Alex Osola for The Wall Street Journal. This is the p.m. edition of What's News, the top headlines and business stories that move the world today. Anthropic has unveiled the paperwork that sets it on the path to going public today in what could be the biggest IPO ever. The filing, called the S-1, offers the most detailed look yet at Anthropic's business. It shows that revenue came to about $16 billion in the six months that ended on June 30th. That's a 1,300 percent jump from the year before. Its losses came to more than $80 billion, largely because of an accounting adjustment related to financing agreements. So what's next? Anthropic's roadshow starts in about two weeks. The company will pitch investors on the roughly $100 billion in shares it hopes to sell. And while there's no official estimate on valuation yet, the journal understands that it's expected to be, as much as $2 trillion. Cori Dreebush covers IPOs for the journal and joins me now. Cori, you were one of the journal reporters going through the 400 pages of this S-1 today. What stood out to you? One of my favorite sections to read whenever an S-1 is published is the risk factor section. About a quarter of the whole S-1 regular filing was devoted to its potential risks. And a lot of those risks are things that we've been talking about in the journal and in the industry. And just in dinner party conversations, there's this discussion of self-preserving qualities of AI models that would cause them to avoid being shut down and can generate responses that almost resemble blackmail in an effort to convince humans to allow them to keep operating. And how AI could lead to the development of new bioweapons or destabilize the geopolitical order. And in addition, if their models do collapse, cause harm, they can't insure themselves like you would think a typical business is able to insure itself because a catastrophic AI-related incident could be so big that no one would be able to cover the potential damages. I want to talk about appetite for this IPO because this was supposed to be the year of IPOs, right? Like we had the SpaceX IPO over the summer. At the same time, we're seeing investors get a little bit wary about funding AI. So do we have a sense of how enthusiastic investors are for an anthropic IPO? This year, I would say it's not really the year of the IPO. It is the year of the mega IPO in the sense that we've seen SpaceX, largest IPO of all time. Anthropic could eclipse that to be the, again, largest IPO of all time. But a lot of companies have delayed their offerings, are postponing or maybe pulling altogether given some market wary. All that said, Anthropic is going to be an outlier. This is seen, even with all the risk factors, all 90-some pages of them, it is seen as a must-own stock. And investors maybe are going to push back on price and valuation. However, from every investor that I've spoken with, they're still going to buy. And the underwriters know that. The company knows that. That was The Journal's Cori Dreebush. Meanwhile, in other tech news, Meta announced a plan to, to raise up to $95 billion in waves of stock offerings to fund its AI infrastructure build-out. That includes about $35 billion in public offerings, as well as a new class of non-voting stock. Megan Bobrowski, who covers Meta for The Journal, says the move speaks to how big and expensive the company's AI ambitions have gotten. This is a huge deal for Meta. They've never done this before. And I think it really speaks to the moment that we're in here, where even this massive public company that is one of the largest businesses in the world, does not have enough money to fund its AI bets. It's worth pointing out today, the same day that Meta announced this, Anthropix S1 dropped. And we know that Anthropix is going public soon. And there's going to be a lot of money going into that. As that happens, and as other companies start to go public in this space, there's less and less money here. Investors haven't always been supportive of CEO Mark Zuckerberg's spending spree, which he says is necessary, for Meta to become an AI company. But Megan says some of this money is likely to come from other AI companies. Among the companies that have expressed interest in buying some of this equity from Meta are NVIDIA, AMD, and Broadcom. And so this is another example of these companies making deals with each other in what can be described as a circular fashion that is worrying to some investors. If one of these companies fails or doesn't work out or something bad happens, they're exposing the rest of the ecosystem and the rest of the industry. Meta stock closed down almost 2%. In markets, Anthropix filing helped lift tech stocks today. And the Nasdaq led the gains in the three major indexes, closing up 0.8%. One company whose shares did sink today was JetBlue. The airline's investors are worried about the company's viability as fuel prices stay high. After the Journal reported that some of its senior creditors have hired a financial advisor and law firm. Creditors usually do that when they think there's a risk they won't get fully repaid on time. While a lot of airlines are struggling with the rising cost of fuel, JetBlue has had an even harder time as one of the smaller carriers. And in Brazil, whose election you heard about this morning, stocks tumbled and the currency sank after President Luiz Ignacio Lula da Silva's unexpected re-election win. Global investors had piled into Brazilian markets in recent weeks, expecting that Flavio Bolsonaro would win and that he would cut government spending and go on a deregulation spree. Market watchers don't think major structural overhauls are likely during another Lula term. And investors are also bracing for more volatility as Bolsonaro has refused to concede. Brazil's Bovespa index fell more than 13%, its worst day since March 2020. Coming up, how the Israeli election became a referendum on Benjamin Netanyahu. We'll get into it after the break. ♪ Tomorrow, Israelis will head to the polls for the country's first election since the October 7th, 2023 attacks. And some consider it to be one of the most consequential in the country's history. That includes not only people living in Israel, but also Israelis living abroad. We're on the verge of losing the country. Israel has been kidnapped by a dangerous government led by a dangerous government. A dangerous prime minister. We have to get rid of this government. I almost don't care what government comes instead, but this government cannot stay. There's not a hell lot that I can do to help Israel, but this is something I can do. That was Eretz Madelon, Netzer Mayoz, and Ayala Kanan. And they're three of the more than 60,000 Israelis living abroad who are coming back to cast their vote. Journal reporter Anat Pellet joins me now from Tel Aviv. Anat, we just heard there from a few of those voters. They're all flying in because they oppose the current government headed by Benjamin Netanyahu, who's been in power for most of the past two decades and is running for re-election. What is at stake in this election and why is it so critical that people are flying back for it? So many Israelis feel that this is the most consequential election in Israeli history. Will it be a Western liberal democracy? Will it go towards a more religious nationalist direction, more illiberal? And so we're really seeing this unprecedented, I would say, return and engagement of Israeli expats. They're coming from all over the world to vote in this election. And while there is no data or polling about how they will vote, the ones we spoke to definitely said that they intend to vote against Netanyahu. Yeah, I spoke to several voters who live in the U.S. now, and my What's News colleagues did too. And those voters mentioned some of the issues that made them feel, well, compelled to fly to Israel and vote, like corruption, the rising power of the ultra-Orthodox, and a feeling that Netanyahu's government hasn't taken responsibility for the security failure of October 7th. Are those issues that have taken center stage in this election? Definitely. While most of the world is interested in questions like Palestinian statehood and the future of Gaza and Lebanon and Israel, it's been more focused on domestic issues. So the campaign has been really focused on October 7th. And there's different interpretations and narratives about what happened that day. Israeli Prime Minister Benjamin Netanyahu blames his security chiefs. And the Israeli opposition says that Netanyahu holds responsibility for the security failure of October 7th and should resign. Netanyahu has been in power for around 19 years, on and off. And so he's a very divisive figure in Israel. So people have very strong feelings about him, whether that's supporting him or being opposed to him. And that is the main divide in Israeli politics today. I wouldn't say it's left or right. I would say it's right. I would say it's Netanyahu and anti-Netanyahu. That's something we heard when we spoke to Israelis planning to travel there to vote, including Erez Madelon, a 57-year-old who lives in Phoenix, who called Netanyahu, quote, dangerous. Eventually it will hit all of us, Israelis and Jews, anywhere around the world, if we're not going to help change the course of where this government is taking us. So Netanyahu, he's faced a lot of criticism internationally for his handling of the war in Gaza and pushing the war with Iran. Some have even accused him of war crimes. How does that factor into Israelis voting? Despite what outside observers may think about what's happening in Israel, Israelis are voting on very different issues than the ones that are important to the international community. No matter who wins in Tuesday's elections, we're not likely to see Palestinian statehood or something like that. There's a large degree of unity. Among the Israeli public in their opposition to that. You mentioned that this election essentially comes down to a referendum on Netanyahu. But who is the opposition? Israel's opposition is fragmented. But the party that has the most votes, according to polling, is Yashar, led by Gadi Aizenkot, who is actually Netanyahu's former chief of staff from the military. He entered politics in 2022, so he's a relative political novice. And so he's really positioned himself as someone who, you know, Israelis can trust. That's kind of been his selling point. Tomorrow is the actual election, but it is a parliamentary system, and the winner has to form a coalition with other parties. When might we actually hear who the winner is, and when will we know whether this will be a stable government? We may not know for a long time who the winner is. The polls close at 10 p.m. in Israel, and then they start to tally the votes. By Wednesday morning Israel time, we should have a general sense. And then even after we get the final. Final results, that's not over, because then they have to try to reach a ruling majority, 61 seats out of 120 seats in Israel's parliament. So they have to form coalitions with other parties, and other parties have conditions. So you have kind of horse trading, and that could take weeks. And while the opposition needs an outright win to come into government, Netanyahu, his bar is lower. Basically what he needs is a tie. Because if neither side is able to form a ruling majority, then he could become Israel's candidate. And that could be several months, and give him more time. Journal reporter Anat Pallad, thank you so much, and I'm sure we'll be hearing from you soon. Thanks for having me. And that's what's news for this Monday afternoon. Today's show was produced by Danny Lewis with supervising producer Tali Arbel. I'm Alex Oseleff for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening. Thank you.