The 1999 IPO boom didn't end well for many who bought into the dot-com hype.
Remember theglobe.com? Webvan? Pets.com and its sock puppet? No, no, and, well, the sock puppet is hard to forget.
What about today's crop of IPOs? They're massive by comparison, and there are fewer of them, creating an environment that could be riskier for investors, according to the experts.
In 1999, there were 476 IPOs that collectively raised $65 billion in proceeds -- $133 billion today, adjusted for inflation, pointed out Nicholas Colas, co-founder of DataTrek Research, in a report Tuesday.
But SpaceX raised $86 billion alone in its June IPO. And Anthropic could raise nearly $100 billion.
"A few blockbuster IPOs, as is the case now, puts a lot of eggs in a limited number of baskets," Colas wrote, adding that trying to compare today's market to what happened more than a quarter of a century ago is like "proverbial apples and bowling balls."
Still, Colas did note that some of those "apples" from the late 1990s turned out to not be rotten to the core, or filled with worms, as many now defunct dot-coms were.
Nvidia, for example, went public in 1999, surging 64% on its first day. But Nvidia, which was then primarily known for graphics processing chips for PC gaming, went public at a valuation of around $600 million and eventually grew into the more than $5 trillion AI chip juggernaut that it is today.
Goldman Sachs, BlackRock and United Parcel Service are also members of the IPO Class of 1999 that have thrived as public companies.
"Hundreds of IPOs in a single year mitigates the risk of deal concentration and gives public equity investors the chance to find great long-term stocks to own," Colas wrote. "The end of the Dot Com bubble was not entirely bereft of great names fresh to public markets."
Another potential worry for investors? Even though Anthropic continues to generate ginormous amounts of revenue, its sales growth is slowing. The Claude developer revealed in its registration filing that its top line rose 45% in the third quarter from the second quarter, down from sequential growth that more than doubled a quarter earlier.
That's one reason why I described Anthropic, as well as SpaceX and ChatGPT owner OpenAI, which is said to be considering an IPO in 2027, as "emerged growth" companies on Monday's Barron's Live podcast, as opposed to the "emerging growth" stories of the late 1990s. Others share that cautious assessment.
"The deceleration of Anthropic's revenue growth ahead of its IPO is a hard reality that investors can't ignore," said Michael O'Rourke, chief market strategist at JonesTrading, in a report last week.
Others are skeptical of Anthropic's IPO as well.
Joel Shulman, CEO of ERShares, an investment firm that runs an exchange-traded fund that owns pre-IPO companies as well as publicly traded stocks, said he's taken a pass on Anthropic. It's not a holding in the ERShares Private-Public Crossover ETF.
Shulman told Barron's that he's concerned that "excessive AI spending, questionable returns on investment...and increasingly competitive low-cost AI alternatives could continue to pressure Anthropic's valuation."
He added that "we like Anthropic and its products, but not at these valuations."
It doesn't matter if Anthropic is a higher quality company than the dot-coms of the late 1990s. Nobody would dispute that. What is up for debate is whether Anthropic, at a potential market valuation of $1.5 trillion, is a good long-term investment.
It seems highly unlikely, if not impossible, for Anthropic to perform anywhere close to as strongly over the next 27 years as Nvidia has since its dot-com bubble era IPO.
The law of large numbers is already kicking in.
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