Plato Investment Management’s head of long/short strategies David Allen has warned that artificial intelligence giant Anthropic presents 14 red flags and could make an attractive short.
Allen, who runs Plato’s $6 billion Global Alpha Fund, urged investors to look beyond the hype surrounding Anthropic, warning that the artificial intelligence company’s potential blockbuster initial public offering carries significant financial risks.
Plato uses a proprietary red flag system to help the hedge fund identify companies to either avoid or short, which is a bet that a share price will fall. On Australian neocloud Firmus, which was forced to pull its IPO, Plato identified 30 so-called red flags.
Plato has found that eight or more red flags typically resulted in a stock underperforming the benchmark by 20 per cent over the next 12 months.
Allen acknowledged the Californian startup’s investor appeal, pointing to gross margins of about 85 per cent and “eye-watering” revenue growth. But he said the other side of the balance sheet deserved closer scrutiny.
His biggest concern is about $US900 billion in largely locked-up commitments, set against revenue streams that are relatively short-term and variable.
He also questioned the company’s lofty growth expectations, including its claimed $US40 trillion total addressable market – larger than the $US32 trillion US economy.
Allen flagged concerns about the potential credit quality of its debt, noting BlackRock’s warning that it could be junk-rated, as well as Anthropic’s own disclosures about the potential existential risks posed by its technology.
“I don’t know if Anthropic is going to be a wonderful success or a terrible investing failure,” he said.
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