Anthropic’s lower-than-expected IPO valuation: smart strategy or sign of trouble?

The five-year old AI company expects to price its shares somewhere between $70 and $78 apiece on Nov. 18, and begin trading on the Nasdaq the following day under the ANT ticker. That price range, which translates to a valuation between $1.26 billion and $1.41 trillion, is significantly lower than the roughly $2 trillion projection that bullish investors and analysts were throwing around over the summer.

And it means that Anthropic would fall short of claiming the largest-IPO-in-history title, currently held by Elon Musk’s SpaceX, which priced its June IPO at $1.77 trillion.

But while Anthropic may miss out on bragging rights, its lower-than-expected IPO price is not necessarily a sign that its business is in trouble, several market experts told Fortune. At a time of political and economic uncertainty, Anthropic’s conservative pricing allows it to manage expectations while leaving itself room to generate buzz if it sees a big pop in its trading debut.

“Anthropic is moving forward with its IPO at a steeper discount than market initially anticipated,” Lior Prosor, general partner at the VC firm Deep33, tells Fortune. “We think that is a smart pricing strategy. It gives nervous AI-trade investors meaningful potential upside while securing the capital Anthropic needs to take full control of its destiny and fund its compute commitments.”

Compute is among the biggest risks in Anthropic’s business. The company has nearly a trillion dollars in committed compute-related spending, according to its most recent S-1 filing, and it still might not be enough. “We expect demand for compute to continue meaningfully outpacing supply across the chain,” said Prosor.

Anthropic could raise as much as $94 billion in its IPO—capital that will be vital to its efforts to secure compute and stay at the forefront of the AI race. As with every company that has an IPO however, Anthropic needs to balance the risk of leaving money on the table if it prices shares too low, with the risk of pricing too high and seeing its share price plummet when trading begins.

“Pricing an IPO to perfection doesn’t leave much excitement or positive press, especially if the stock falls after the IPO,” said Darian Shirazi, general partner at Gradient. “Anthropic is likely optimizing for positive media coverage of the IPO and to drive more upward momentum after pricing. IPOs that fall after pricing usually suffer months of negative press before recovery, so this is likely a good way to ensure a positive outcome for all investors—existing and new.”

Anthropic is one of the undisputed leaders in developing frontier AI models, with its technology widely used by businesses, particularly for software programming and cybersecurity. Whether Anthropic can make its AI tools must-have technology for a broader swath of customers however is one of the key questions facing the company as investors size it up, and compare it to competitors such as OpenAI and Google.

Anthropic’s revenue in the third quarter totaled $17 billion, up more than 1,100% from the same time one year ago. On a quarter-over-quarter basis however, Anthropic’s revenue grew 47% in the third quarter, a marked slowdown from the 144% sequential growth rate it posted in the second quarter.

Not helping matters, last week’s midterm election results could spell trouble for the data center buildout. In anticipation of more difficulty getting projects across the line, and in a bid to curry favor with the public, Anthropic’s chief rival OpenAI is attempting to rebrand data centers “compute campuses.”

Astronomical compute spending, combined with slowing third quarter revenue, has “given prospective buyers pause,” Aman Verjee, founder and general partner at Practical Venture Capital, tells Fortune. “Additionally, recent broader market sell-off related to political headwinds in Congress in key states where data centers are being built—notably Texas, Georgia, and Ohio—has dampened some enthusiasm.”

Even with these concerns, the lower valuation “reduces expectations and leaves plenty of room for upside appreciation,” Verjee said. If the IPO exceeds expectations, it sets the stage for positive press, which could have favorable downstream impacts, Gradient’s Shirazi.

As its IPO approaches, Anthropic has sought to build buzz with a blizzard of product announcements. On Monday, it debuted new models, Fable 5.2 and Mythos 5.2, that are 20% cheaper than rival OpenAI’s flagship model, GPT-6 Astra, while claiming superior performance. On Tuesday, Anthropic released a suite of new workplace tools that could threaten Microsoft’s iron grip on white collar work for non-coding roles.

Anthropic’s lower-than-expected valuation does not signal any “weakness in Anthropic’s business,” Bastiaan Janmaat, general partner at Lithos Capital, tells Fortune. “In fact they’ve shown incredible advances recently.”