It is silly season in the world of AI. Anthropic is now coming to Wall Street, amid predictions that it will crash through a valuation of $1tn when it floats on the stock market (£740bn). The maker of Claude is in pole position to beat rivals OpenAI and Elon Musk’s SpaceX to the market after registering to sell shares in the US.
This puts Anthropic at the front of the pack racing to become the first AI model developer to go public. Breathing down its neck, Google’s parent company Alphabet, which also owns YouTube, sells Pixel phones, and is behind the Chrome browser and the Android operating system, is seeking to raise $80bn from investors to pump into AI. Alphabet’s market value is $4.5tn, bigger than all the companies on the UK All Share index combined ($2.8tn).
One thing Anthropic has going for it is that it is, in the traditional, fuzzy sense, well liked. It was founded in 2021 by former OpenAI executives, including the siblings Dario and Daniela Amodei. It has positioned itself as a safety-first AI lab and states on its website: “We want AI to be safe and beneficial for our users and for society as a whole. Our team is a quickly growing group of committed researchers, engineers, policy experts and business leaders working together to build beneficial AI systems.”
It is also currently in a court battle with the Pentagon after it was designated a “supply-chain risk” over national security concerns. Donald Trump’s Department of War sought unrestricted use of Anthropic’s technology, while the AI lab wanted assurance that its models would not be used to make fully autonomous weapons or for domestic mass surveillance.
Private investors already adore it. Last week Anthropic raised $65 billion in a funding round, valuing the AI lab at $965 billion in one of the largest private funding rounds in history. That led to Anthropic leapfrogging OpenAI, the maker of ChatGPT, which was last valued at $852 billion.
Still, that valuation number is dizzyingly large. There are between 100bn and 400bn stars in the Milky Way, which is not even half a trillion at the upper end of the range.
What this tells us is that the stock market is still capable of going completely bananas when a substantial number of its participants take leave of their senses. If they go too far, you eventually get a correction, like the one that happened when the dot com bubble that built up in the nineteen nineties popped. Still, somewhat sensible.
But when it comes to AI, it’s different. Billions upon billions of dollars are currently being pumped into the race to become the kingpin. Again, the sums are so heady they break your brain. The planned Anthropic float – it is yet to file details of how much it is seeking to raise and at what price the new shares will be offered – and the Google/Alphabet cash call are the latest examples.
Investors are ponying up based not on a cool assessment of how much this stuff is going to generate, and thus how much the shares are worth, but out of a mixture of fear and greed. The question they ask is not “is this a good bet” but rather “how big of a chump will I look like if I miss out on the pot of AI gold at the end of the rainbow”.
This is not a good way to invest. AI increasingly resembles the modern day equivalent of Dutch tulips. I love the story of the humble bulb – even if, like every good story, it contains a few exaggerations. In a way, that makes it an even more appropriate way to talk about AI. It is the first documented incidence of an economic/market bubble. It occurred when tulips made their way to the Netherlands and became a status symbol among the rich.
So far, in this flashy new world of AI, no one’s said ‘nee’. What happens if and when they do? If someone points out that the while the emperor mayn’t have no clothes, he’s only wearing a pair of Speedos with a cheap towel slung over his shoulder rather than the fabulous silk doublet claimed by the haberdasher?
In the initial phases, the cash being burned by techs was raised from wealthy investors via private cash calls. Rich individuals, the family offices managing their fortunes, private equity firms, hedge funds and the like. It can get messy if they take enough losses to go down, don’t get me wrong.
Now, however, it’s the public markets that are being tapped. A new tech crash will leave blood on the tracks, spreading pain across our pension funds, the savings we pump into investment funds and more. It will batter confidence, making it harder for respectable, profitable, worthwhile companies in unrelated sectors to raise money for their products. People will run scared of risk. CEOs and finance directors will run for cover, battening down the hatches. Jobs will go.
When bubbles pop, there are real world implications. True, if AI doesn’t deliver on the hype, Alphabet/Google, will survive. It has a suite of wildly successful products. But what if Anthropic, a much earlier stage company doesn’t stack up? Is it already too big to fail at $1tn?
There’s another question, that might be even scarier: just how many jobs will to be destroyed if I’m wrong, if AI delivers on the gaudy promises being made. That’ll really keep you up at night if you think it through. It does me.
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In the meantime, keep a close eye on those digital tulips, and be prepared to bolt as soon as the virtual wind picks up and they start to wobble.
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