Musk's astronomical IPO hits the headlines: Should you put your chips on the real stars of AI?

Forget the World Cup.

Betting on the competitors in the AI race is the real gamble this summer and autumn.

Two more major groups involved in this ground-breaking technology will be vying for investors’ cash in the coming months.

The response to the $1.8 trillion (£1.3trillion) SpaceX share sale shows that, this summer, investors have a taste for initial public offerings (IPOs).

Fortunately, two more mammoth tech flotations are on their way.

OpenAI, the Californian start-up behind the ChatGPT AI system, plans to make its stock market debut – perhaps as early as September – with a potential $1trillion (£750billion) valuation.

Sam Altman, OpenAI’s chief executive, hopes to go public before his most bitter rival, Anthropic. This company, the maker of the Claude AI software, is also

planning a $1trillion IPO in the next few months. Anthropic is run by brother-and-sister team Dario and Daniela Amodei, colleagues of Altman’s before they walked away from OpenAI.

The hugely enthusiastic response to this week’s IPO of Elon Musk’s SpaceX suggests that investors, professional and private, are more than ready for a flutter on AI. Anthropic and OpenAI represent direct bets on the technology.

But while SpaceX may be primarily associated with rockets and satellites, Musk opted to take it public this month principally to finance the build-out of its xAI division, which develops the Grok technology.

Musk chose his timing well. Such is the general level of excitement – accompanied by an almost equal level of angst – over AI that there has been a 73pc leap this year in the Philadelphia Semiconductor Index.

The index’s constituents include giant companies such as AMD, Broadcom, Taiwan Semiconductor Manufacturing Company (TSMC) and the titan Nvidia. These firms design and manufacture the sophisticated microchips which are essential AI hardware.

Also surging have been shares in Micron, SanDisk and Seagate, which provide memory systems – another resource that AI requires in large amounts.

The fast appreciation in AI stocks may be enticing but this is an investment in innovation with considerable jeopardy involved.

Putting money behind AI is an investment in upheaval, with the disruption of jobs and other aspects of the economy likely to precede the benefits. It is also an investment in innovation.

If this sounds like your kind of game, and you would like to join the fun before the IPOs, here are the companies attracting all the attention.

OpenAI and Anthropic are success stories in an intensely competitive field. ChatGPT has about 900million users worldwide, with 50million of these paying a fee.

However, Altman, who set up OpenAI in 2015, is reported to be planning major changes to ChatGPT to generate more revenue. Forging a path to profitability is said to be a central goal.

But even Altman does not think OpenAI will achieve this until 2030. His proposed makeover of ChatGPT is almost certainly spurred by the take-up of Anthropic’s Claude, which has been widely adopted by businesses, including law firms and other professional services.

Thanks to its appeal to business, Anthropic is forecasting to make its first-ever operating profit of $559million on sales of $10.9billion in the second quarter of this year.

In the world of tech, it has become traditional to prioritise growth over profitability in the hope of securing dominance in a sector. This will make some

investors uneasy, although it should be noted that Amazon, Meta and Nvidia are massively profitable, thanks to this way of thinking.

Anthropic and OpenAI’s IPO plans caused a stir, but they come at a time of concern for the technology.

At the root of these worries is the lack of demonstrable payback from the super-sized capital deployment on AI by large corporations and America’s Magnificent Seven: Alphabet; Amazon; Apple; Meta; Microsoft; Nvidia; and Tesla.

Alphabet, Amazon, Microsoft and Meta are on track to splash out $725billion on AI infrastructure this year.

The expenditure may accelerate rather than slow down, too. OpenAI calculates that by 2030, it will have spent some $600billion to improve its competitive advantage and become profitable.

About 30 per cent of the SpaceX IPO was reserved for private investors, who are usually excluded from such sales.

British investors were able to apply through platforms such as Hargreaves Lansdown, but it is not clear whether Anthropic and OpenAI will wish to encourage such participation.

Read More

While waiting for the details to be revealed, it is worth scoping out funds that provide exposure to the whole AI sector.

Ben Rogoff, manager of the Polar Capital Technology investment trust, who says that he has been ‘an AI maximalist since 2023’, has picked stocks including Nvidia, Micron, SanDisk and Seagate – which have seen the portfolio’s shares climb by 43pc this year.

The trust featured in this column in August last year, when the AI industry was beset by one of the now-regular periods of gloom.

As an investor, I am holding on to Polar Capital Technology. The same goes for my other AI selection, Allianz Technology, whose shares are up 31pc since January.

Another option is the Guinness Global Equity Income fund, whose manager, Matthew Page, prefers stocks which provide the tools for the technology rather than focusing on the technology itself.

But if you would like some exposure to Anthropic, trusts including Baillie Gifford US Growth, Scottish Mortgage, Schiehallion, RIT Capital Partners and Pantheon International already own a slice.

Altman seems to have shunned UK sources of finance, preferring to solicit the support of US tech titans Amazon, Microsoft and Nvidia, for instance.

Maybe he will soften the stance when the terms and conditions of the IPO are drawn up.