The blue wave hits Anthropic’s IPO

SPEAKER_1 (0:00)

Progressive's accident response can contact emergency services if you're in a major accident. The only thing worse than someone you love being in an accident is not being able to help them. So Progressive is here to help when you can't. So get peace of mind knowing your loved ones are protected with Progressive's accident response. Learn more at progressive.com. Progressive Casualty Insurance Company and Affiliates, limited availability in California. Driver is responsible for emergency and towing charges not covered by the policy, coverage subject to policy, terms and conditions.

Calder McHugh (0:34)

Hello and welcome to Decoded by POLITICO. I'm Calder McHugh.

Sam Sutton (0:38)

And I'm Sam Sutton. Today on the show, how markets are reacting to the blue wave. Plus, AI safety advocates won big during this year's midterms.

Will they be able to build on that coalition?

Calder McHugh (0:51)

What did we see in the market right after the election, and how is that different from what we're seeing as we speak?

Sam Sutton (0:58)

Well, the last time that we spoke together on this podcast, it was about 1.3 in the morning on election night or early Wednesday morning. And at that point in time, I was talking about how on Wednesday, we might see a little bit of a bloodbath. Asian markets were selling off.

US stock futures were also looking pretty crummy at that point in time. And I think that there was a lot of fear that the arrival of Democratic control of Congress and more importantly, Democratic control of state houses across the country might seriously hinder the AI growth story that has been a huge boon to both the economy and our markets for the last couple of years.

That did not happen on Wednesday. It was a very, very good day on Wednesday for stock investors. Even companies that are linked to the AI boom, closely linked to the AI boom did relatively well. On Thursday morning, it looked a little bit like when people feel like they don't have a hangover and then they suddenly get a hangover well into the process. It has been an absolute bloodbath in the Nasdaq today, which is a very tech-heavy stock exchange. And a lot of that is due to the fact that people do seem to be waking up to the fact that elections have consequences. And to the extent that there is a strong appetite to curtail data centers, that is going to have a negative effect on chip makers like Nvidia. And that is going to then spill into the broader AI ecosystem.

Calder McHugh (2:26)

So Sam, all of this is happening within the context of what is expected to be very soon, the largest IPO in history. Of course, that is Anthropics, which we expect to be coming up again within the next few weeks.

It's fascinating that these two things are happening right at the same time. How might this market correction affect Anthropics' large IPO day?

Sam Sutton (2:51)

Yeah, so the AI narrative in markets has been under pressure for some time. I mean, even before the election, the Nasdaq tumbled into correction territory on Monday, or the Nasdaq 100, I should say, which is the 100 largest companies in the Nasdaq. And that means that the market had fallen by 10% from its previous peak. And that's pretty meaningful. Anthropic was pretty explicit in its lengthy list of risks to its business about potential sensitivity to political changes, potential shortages of compute, potential political backlash to data centers. We've seen all of that play out in the last couple of days here. And so that means that you have a few things happening at once. One, you have markets or market participants that are already a little bit wary of the AI story and showing some concerns about the ability of the largest participants in the AI boom being able to pay for the huge investment. You know, we're talking north of a trillion dollars in investment in AI capex. That's already been put in the ground. That's one bucket. The next bucket, you've got the changes in politics. We had seen a lot of backlash to data centers through the last year.

But now that Democrats have control of Congress, and I think more importantly in Texas, where more than a quarter of data center capacity, planned data center capacity is located, it points to the likelihood that there's going to be bigger challenges around constructing the infrastructure that's necessary for the AI boom moving forward. And then three, you've got Anthropic preparing to go public after identifying all of what I just mentioned before as a risk to its business model. I had a conversation with Stephen Myro, who's a managing partner at Beacon Policy Advisors. He was a top aid at the Treasury Department during the global financial crisis.