How to Invest in Anthropic Pre-IPO

Anthropic is one of the hottest artificial intelligence (AI) start-ups. It raised a staggering $7.3 billion in the past year, a massive haul for a company that just opened its doors in 2021. Early Anthropic investors feature a who's who of tech titans and venture capitalists backing a team of former OpenAI employees who wanted to focus on AI safety.

They've developed the AI chatbot Claude, a digital rival to OpenAI's uber-popular ChatGPT. The company's latest model (Claude 3 Opus) has outperformed OpenAI's GPT-4 model in areas like reasoning, math, and coding.

Anthropic's early technology edge and big-time backers have many people interested in learning how to invest in the AI company. Here's everything you need to know about Anthropic, including ways to invest in the pre-IPO (initial public offering) company.

Publicly traded?

Is Anthropic publicly traded?

As of mid-2024, Anthropic wasn't publicly traded. The AI developer was a privately held company owned by venture capital funds and technology giants. The company's early investors are among the biggest names in Silicon Valley.

In May of 2023, it raised $450 million from investors, including Salesforce (CRM 7.54%) and Alphabet's (GOOG 0.23%)(NASDAQ:GOOGL) Google. Fellow tech titan Amazon (AMZN -1.61%) has poured $4 billion into the AI start-up, Google subsequently agreed to invest another $2 billion, and venture capital firm Menlo Ventures has invested $750 million.

When will it IPO?

When Will Anthropic IPO?

Anthropic is one of the top IPO stocks to watch. As of mid-2024, the AI company didn't have an IPO on the calendar and likely won't go public anytime soon.

It has successfully raised billions of dollars in the private capital markets, giving it lots of cash to fund research and development and scale its business. Many of its top investors have already made large follow-on investments. Given its ease of raising capital, Anthropic will likely remain private as it builds its AI capabilities.

How to buy

How to buy Anthropic stock

Because Anthropic is still a private company, you can't buy its shares in a brokerage account. However, accredited investors (i.e., those with a high net worth or high income) can sometimes buy shares of pre-IPO companies on secondary marketplaces, like Forge Global (FRGE -1.25%) and Hiive.

Although non-accredited investors can't buy Anthropic stock yet, there are alternative ways to gain exposure to the company. For example, anyone can invest in the Fundrise Innovation Fund. Fundrise, a company specializing in offering retail investors access to private market investments, manages the venture capital fund.

The Innovation Fund owns shares of several privately held technology companies, including Anthropic, OpenAI, Databricks, and Canva. The fund has a very low investment minimum of just $10.

You could also consider the Ark Venture Fund (NASDAQMUTFUND:ARKV.X), a tiny closed-end fund managed by Cathie Wood. The fund holds shares of several pre-IPO companies, including Anthropic (5.5% of its net assets in early 2024).

Another alternative is to buy shares in companies that have invested in Anthropic, giving you some indirect exposure to the AI company. Three top AI stocks are:

Amazon

Amazon is a leader in e-commerce and cloud computing (through Amazon Web Services [AWS]). The company has invested $4 billion into Anthropic, including taking a minority stake and notes convertible to equity.

As part of its strategic minority investment in Anthropic, the AI company will use AWS as its primary cloud provider and AWS Trainium and Inferentia chips to build, train, and deploy future models. Amazon's investment and strategic partnership are part of its commitment to advance generative AI technology.

Alphabet

Alphabet is a leader in search, social media, and innovation. The company's Google subsidiary is investing heavily in AI technology and has developed its own AI chatbot (Gemini AI, formerly Google Bard).

The company is also an early investor in Anthropic, initially pouring $550 million into the AI start-up. Subsequently, it agreed to invest as much as $2 billion in the company in 2023, including $500 million up front. Anthropic also signed a multiyear deal with Google Cloud.

Salesforce

Salesforce is a leading software and cloud company. It has also been an early adopter of AI. It's integrating the technology into many of its products, including launching its Einstein Copilot generative AI assistant for customer relationship management. The company's venture capital arm, Salesforce Ventures, invested in Anthropic through its $250 million Generative AI fund.

People who want to buy one of these early Anthropic investors can purchase shares in any brokerage account. Here's a step-by-step guide on how to invest in stocks that own a stake in Anthropic.

Step 1: Open a brokerage account

You'll have to open and fund a brokerage account before buying shares of any company. If you still need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to decide how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

That might seem like a daunting task for those starting out. However, you don't have to get there on the first day. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across around 10 stocks and then grow from there.

Step 3: Research related companies

It's essential to thoroughly research a company before buying its shares. You should learn how it makes money and study its balance sheet and other factors to ensure you have a solid grasp on whether the company can grow value for its shareholders over the long term. You should also research related companies.

Some notable competitors to Anthropic (and by extension Amazon, Alphabet, and Salesforce) are Meta Platforms (META -0.05%), Microsoft (MSFT 0.11%), and Apple (NASDAQ:AAPL). Investors should take the time to research these rivals before buying shares of Anthropic or one of its major shareholders.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock and its competitors, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill in all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (AMZN for Amazon, GOOGL or GOOG for Alphabet, and CRM for Salesforce).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order because it guarantees you buy shares immediately at the current market price.

Once you complete the order page, click to submit your trade and become a shareholder in one of Anthropic's leading investors. Investors would follow a similar process to buy an IPO stock like Anthropic when it goes public. Once shares become available, fill in your brokerage account's order page with the AI company's selected stock ticker and submit your trade.

Profitability

Is Anthropic profitable?

As a private company, Anthropic doesn't have to publicly disclose its financial results. However, given its popularity, we do have some financial information about the company.

The Information reported in late 2023 that Anthropic was generating about $100 million in annualized revenue at that time. The company expected that number to grow significantly, potentially reaching the $1 billion annualized milestone by the end of 2024.

While Anthropic is generating meaningful and rapidly rising revenue, a report by Contxto raised concerns about the company's margins and long-term profitability. It noted that data revealed that the AI company's gross margin was in the 50%-55% range in December 2023, significantly lower than the 77% average of cloud software stocks.

Anthropic is also investing heavily in research and development (R&D) to train its AI models, which can cost as much as $100 million per model. As a result, the company is not yet profitable and likely faces a long road to reaching profitability as it continues to invest heavily in R&D and scaling its business.

Should I invest?

Should I invest in Anthropic?

While you can't invest directly in Anthropic yet, you can gain exposure to the company through a fund holding its shares or by investing in one of its backers. With that in mind, here are some reasons to consider investing in the company:

• You believe its Claude AI chatbot is superior to rivals like ChatGPT, Meta AI, and Grok.
• You like that the company has the financial backing of some of the biggest names in technology.
• You believe Anthropic can grow its revenue significantly in the coming years and eventually turn the corner on profitability.
• You think Anthropic can develop additional AI-powered products and tools to enhance its long-term growth prospects.

On the other hand, here are some reasons you might opt against investing in Anthropic:

• You're concerned about growing competition in the AI space.
• You prefer a rival AI chatbot.
• You think AI might be more of a fad and never live up to the hype.
• You're worried the company might never turn the corner on profitability.
• You're concerned about how regulation, legislation, or legal issues might affect AI's growth trajectory.

ETF options

ETFs with exposure to Anthropic

Since Anthropic isn't a publicly traded company yet, you can't passively invest in the AI company through an exchange-traded fund (ETF). However, you can invest in the same AI trends driving its growth through ETFs. Here are three top AI ETFs to consider investing in to capitalize on the AI megatrend:

• iShares Exponential Technologies ETF (XT -0.28%): The ETF managed by BlackRock (NYSE:BLK) enables you to invest in companies with significant exposure to disruptive technologies, like AI. The ETF held shares of 200 companies in mid-2024, led by AI chip giant Nvidia (NVDA -0.79%) at 1% of its net assets. The fund had a 0.46% ETF expense ratio.
• Global X Artificial Intelligence & Technology ETF (AIQ -0.21%): This fund aims to invest in companies that stand to potentially benefit from the development and usage of AI. In mid-2024, it had 84 holdings, including Meta Platforms, Amazon, and Alphabet in its top 10. The ETF had a 0.68% expense ratio.
• First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT 0.55%): The fund aims to track the performance of companies engaged in AI, robotics, and automation. In mid-2024, it had 108 holdings. The ETF had a 0.65% expense ratio.

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The bottom line on Anthropic

Anthropic is one of the hottest start-ups in the hottest sector, and it has the backing of some of the top names in technology and venture capital. They've infused it with cash, giving it the capital to invest heavily in developing AI models.

It's already growing extremely fast and has a long growth runway ahead. Add in its technological lead over other chatbots, and it's one of the more exciting AI companies.

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