Key Points
Amazon's investment in Anthropic has been a huge win.
However, Amazon will benefit from an Anthropic IPO in more than one way.
Anthropic is moving closer to an IPO, with a potential October debut on the table. The maker of the Claude frontier large language model (LLM) was last valued at $965 billion in its last funding round in May. However, secondary market transactions have recently been valuing the company at around $1.2 trillion.
While investors eagerly await Anthropic going public, one company is set to see a big windfall from its investment. That company is Amazon (NASDAQ: AMZN). The e-commerce and cloud computing giant has invested around $13 billion in the LLM maker and reportedly owns between a 15% and 20% stake in the company. With its most recent investment in April, it also agreed to invest an additional $20 billion if "certain commercial milestones" were met.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
At a $1.2 trillion valuation, Amazon's stake in Anthropic would be worth between $180 billion and $240 billion. That's a nice return on a relatively modest investment. However, the Anthropic IPO will do more for Amazon than just give it a nice investment gain. As part of its latest investment, Amazon received more than $100 billion in commitments from Anthropic over the next decade. This includes up to 5 gigawatts (GW) of capacity for training and running Claude, as well as for future iterations of its Trainium AI chips and Graviton central processing units (CPUs).
One of the big reasons a company typically goes public is to give some liquidity to its investors and employees so they can cash out and take some profits. The other big reason is to get a nice infusion of cash. A strong IPO will help fill Anthropic's coffers, putting it in a stronger financial position. This will also allow it to continue its aggressive spending on AI infrastructure. As one of the core AI customers of AWS, this is good news for Amazon.
Image source: The Motley Fool.
A great stock to buy
Amazon's investment in Anthropic and partnership alone isn't reason enough to invest in the stock. However, it is a nice cherry on top for what overall looks like a great stock to buy. Amazon's cloud computing revenue has started to accelerate, backed by commitments from both Anthropic and OpenAI. Meanwhile, its custom chips help give it a nice cost advantage.
At the same time, its investments in AI and robotics are helping drive huge operational efficiencies and leverage in its e-commerce operations, fueling strong profit growth in the segment. Trading at a forward price-to-earnings of just 26 times 2027 analyst estimates, the stock is attractively valued given the momentum it is seeing in both its core businesses.
Geoffrey Seiler has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.