What does Anthropic IPO and Google's $80 billion equity sale say about the growth of AI space

The Artificial Intelligence space is the only buzzing sector that is driving all the investors’ attention. Be it from announcing new and advanced AI models to IPOs. Now, the IPO space is also buzzing with Anthropic filing for its initial public offering, after raising $65 billion in series H funding at a nearly $956 billion valuation. The fundraising comes at a time when global tech companies are planning relentless expenditure on AI infrastructure as they see humongous potential in it.

Alongside Anthropic, Google’s parent company Alphabet also announced a stake sale worth $80 billion to support the AI capex of $180 to $190 billion this year. All the tech companies together plan to invest close to $750 billion in AI infrastructure to serve the unprecedented demand for AI computation.

Google’s equity offering and Anthropic’s IPO filing coming in the same week warrant a deep dive into what is happening in the AI spending space and what it indicates.

Software companies need hardware expansion

For a long time, tech companies were known for creating digital assets and wealth through software development, which required a very asset-light business model with efficient human capital. As AI adoption gathers pace, the software industry and tech companies feel the need to stack up physical assets like data centres and power generation plants to support this unprecedented growth in demand.

Fulfilling the rising computation demand requires solid infrastructure, right from land to chips, from wires to power, and requires strong capital investment. This has now turned into an AI infrastructure capex race, where companies are competing in generating huge capacities of AI data centres and expanding them to serve future demand.

Dearth of private capital

After raising $65 billion through a Series H round recently, Anthropic is eyeing another fundraising round through public markets. Most of these AI companies have grown on the back of private equity and venture capital funds, which now look dry. According to the Stanford HAI AI Index report, Pitchbook and OECD report, the total cumulative private capital invested in the AI space amounts to $1.3 trillion to $1.5 trillion. As the AI spending increases at a faster pace, the AI companies continue to burn millions of dollars to keep pace with the compute demand and private equity and VC players alone cannot run the show. Hence, companies like Anthropic are now knocking on the doors of public markets to raise funds.

When will AI capex drive ROI?

The big tech companies are unloading huge amounts of capex, which is expected to surpass $2.5 trillion in 2026 alone, according to a Gartner report. However, investors are now anxious over the evidence of profitability in the huge capex spending by companies that have adopted AI. A McKinsey report highlighted that only 5.5% of the enterprises reported substantial financial returns. On the other hand, picks and shovel providers like chip manufacturing companies, memory chip makers, optical fibre makers, data centres, and power generation companies are the ones making huge returns on their investments in the capex to serve the rising demand. Meanwhile, big tech companies like Amazon and Google are driving revenues from their cloud business, which is incrementally impacted by the AI capex.

The bottom line

The AI space is fast changing from being a startup ecosystem to an industry-scale level, and the growth needs to be funded heavily. Even the traditional value investors like Berkshire Hathaway are not left behind in participating in the space by tapping $10 billion in Google’s underwritten equity sale. It also validates that the AI spending is now not merely a speculation on future technology, it's here to stay, thrive and grow like never before. The only question that needs to be addressed is improvement in profitability metrics, which could justify the ballooning valuations in the AI space.