Piling Up Cash as I Brace for the Storm
Anthropic ($ANT) officially filing to go public appears to have stabilized the stocks in the neocloud providers this week after deep declines throughout October. The successful IPO of Anthropic will be the biggest determinant of market direction over the next few weeks in my opinion.
And the company’s S-1 raises as many questions as answers. The risk section runs some 90 pages and includes the possibility that AI could morph into an existential threat to humanity. TheStreet Pro‘s Doug Kass has done a fantastic job highlighting the potential red flags from this coming offering on the Daily Diary. Therefore, I will not beat a dead horse within today’s column.
I am getting more concerned about the amount of equity issuance being foisted on the markets. It reminds me eerily of 1999 when nearly 500 companies came public at the tail end of the Internet Boom. Many with faulty business models and no clear paths to profitability. Both Alphabet ($GOOG) and Space Exploration Technologies Corp.($SPCX) raised roughly $85 billion via equity in June. Meta Platforms ($META) is about to raise nearly $100 billion via secondary offerings. Anthropic is hoping to raise roughly the same amount with its upcoming IPO. OpenAI hopes to be not too far behind its frontier AI lab brethren and make it out of the shoots, probably in the first half of 2027. Provided the IPO window is still open in the coming year.
And the amount of circular financing throughout the AI ecosystem is getting to be obscene if not downright incestuous. In recent months, Broadcom, Inc. ($AVGO) is becoming Nvidia ($NVDA) Lite. It may buy $3 billion of Meta’s secondary offering. Broadcom is also going to backstop a huge debt deal that it is pushing banks to provide Anthropic.
I continue to sit on a slightly higher allocation to cash and short-term Treasuries than I would optimally like at around 40% of my portfolio. I have good company with sitting on a ton of cash with the likes of Warren Buffett, David Tepper and many other notable billionaire fund managers doing the same right now. There is no equity risk premium in this market and three-month T-bills pay around 4.2%. Nicely above the “official” rate of inflation for what it is worth.
Frankly, I am enjoying the calm before the storm. I expect the Fed to stand pat at the conclusion of the Federal Open Market Committee meeting today. But if consumer price index and producer price index readings keep coming in as they have been, I do expect the central bank to hike rates at one of their next two confabs. I also expect a clean sweep in congress in the coming mid-terms which will introduce a new uncertainty factor in the markets.
Unfortunately, I also see hostilities with Iran picking up in November again after the mid-terms and with some sort of new government in Israel. And investors will be on their tippy toes next month around how the massive IPO for Anthropic will get executed. I expect much greater volatility in the month ahead.
At the time of publication, Jensen had no position in any security mentioned.
