It’s the year of the mega-cap AI IPO, with SpaceX readying for a mid-June IPO, valued at $1.75 trillion, and Anthropic poised for its own big moment later in the year. Undoubtedly, if a piece of Elon Musk’s legendary space and AI company doesn’t tempt you, perhaps a stake in the company behind Claude and the phenomenon known as Claude Mythos will, not just because its financial trajectory is easier to digest compared to the likes of its top rival OpenAI, also slated to go public at some point, but because of its enterprise focus or its core views on AI safety.
Any way you look at it, the rest of the year could be unlike anything we’ve witnessed before. But the real question, at least in my opinion, is whether it makes sense as a value-minded investor to participate earlier on, or if it makes more sense to let the stocks settle for a while. I don’t know about you, but I’m most excited to see how that first year shapes up.
And while the Nasdaq 100 (and perhaps soon the S&P 500) might be ready to “fast track” the entry of SpaceX-xAI and the like, I’m more than content with a lengthier period of seasoning, even if it means missing out on colossal gains in that first year or two.
That doesn’t mean I won’t be hunting down value in other parts of the market, though, especially as market enthusiasm in the hyped momentum stocks takes a bit away from high-quality AI names. Sure, the Magnificent Seven are powerful, but, at this juncture, doesn’t everyone already have a slice?
Forget parabolic moves! Quality looks to be on sale!
As Pershing Square Holdings’ Bill Ackman recently put it on the All-In Podcast, investors might be at risk of moving towards the “new new thing” (that’d have to be the semiconductors and AI bottleneck plays that have gone parabolic of late), rather than the good, old-fashioned quality plays.
They’re obvious. But they are nonetheless cheap, and Ackman doesn’t seem to be afraid to place big bets in the titans as investors move on to the next hot, new thing, whether it’s SpaceX-xAI, Anthropic, or the next big name to rise from the depths of the semi scene.
After a strong past year for the semis, the industry now accounts for a swelling piece of the overall S&P 500. And it’s unclear where things will settle.
Here’s a stealthy AI play I’d pursue over Anthropic’s IPO
In terms of relative value in the AI waters, I’d look no further than the likes of an International Business Machines (NYSE:IBM | IBM Price Prediction). It’s a boring play that won’t allow you to brag at the water-cooler. But it is a name that I think is deeply discounted, given its growth drivers (yes, quantum is one of them, especially after its five-year $10 billion commitment).
And, after soaring more than 30% in the past month, the name is a newly-discovered winner that might just have legs to catch up as investors look to re-rate the firm for the sheer magnitude of innovations underneath the hood of the legacy tech firm that many might still associate with the PCs of the 80s.
With Anthropic poised to debut with a valuation in the ballpark of $965 billion (could $1 trillion be in the cards shortly after?), IBM will be close to three and a half times smaller in terms of market cap ($287 billion today). Does that make a whole lot of sense?
Given the disruptive models coming out of Anthropic’s pipeline, perhaps it makes more sense to be on the right side of innovation than in a legacy software name, even if it means paying a markedly higher multiple.
That said, IBM isn’t just some software play that’s to be disrupted; it’s an AI and quantum innovator that has the tech and talent to make up for lost time. As boring as IBM sounds on the surface, what it’s working on behind the scenes is genuinely exciting.
IBM: The cheap ticket to the AI (and quantum) race?
Even at 26.6 times forward price-to-earnings (P/E), IBM strikes me as a quality stock with a nice 2.0% yield that might be the deep-value investors’ ticket into AI and, eventually, quantum computing, and maybe even quantum AI. I don’t know about you, but I’ll take a cheap, profitable legacy titan over a red-hot market newcomer that might flirt with a $1 trillion valuation.
Maybe Anthropic is worth the colossal premium, maybe not. Time will tell, but as a value investor, I find it tough to jump in until the market cap of the firm behind Claude comes in a bit.
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