The IPO market on both sides of the Atlantic never really got out of first gear after bankers returned to their desks following the European and North American summer.

Rising sovereign debt yields have cast a shadow over previously robust corporate earnings and, with results season fully underway, all eyes will be on 4Q outlook statements.

Throughout 3Q and heading into this quarter, equity indices had remained stubbornly high, albeit mostly driven by continued investment in AI-linked stocks.

“Under the surface, the top 10 names in the S&P 500 have been carrying the whole market. Everything else has been damaged badly by rising yields,” said an ECM banker.

Indeed, the growing differential between the S&P 500 and the S&P 500 Equal Weight indices is evidence of how much recent alpha has been concentrated at the top.

This has weighed on IPO issuance in both the US and Europe.

Source: Dealogic

“It’s all been about AI in the last few weeks,” the banker added. “That’s been the hardest thing to explain to IPO issuers with indices high and the VIX low.

But fears are growing that even the bull trade around AI, in particular the hyperscalers, may be running out of steam. And the degree to which the US stock market has been a one-way bet on AI will be further tested if falls in recent sessions mount.

The Nasdaq 100 is down 6.5% since 6 October and fell 2.5% on Friday. The VIX spiked above 21 on Friday – even at today’s 18.58, it’s still 21% higher over five sessions.

Amid wider enterprise adoption of open-weight LLMs, run on locally hosted infrastructure, data centre-focused debt issuance backing AI-related build out is slowing as lenders step back.

As this column’s M&A-focused twin Continental Drift highlighted last week, just USD 23bn in such paper was printed in September, down more than 50% on the level seen the previous month, according to Morgan Stanley research.

“We’re seeing open-weight models become more prevalent,” said one debt investor.

“There is a question about whether that’s going to reduce the total addressable market for the frontier models if the open-weight models become more entrenched.”

Shares in cloud computing company CoreWeave, which rents GPU capacity for hyperscalers, like Anthropic, have fallen by over 30% since the beginning of October.

Its bonds have also been hit hard.

As the Nasdaq 100 fall demonstrates, CoreWeave has been far from alone in feeling the pain.

Anthropic to test AI sentiment

Into this environment, Anthropic is riding in with the largest IPO ever – a true test of investor sentiment on the space, and particularly the hyperscaler model, at a time of growing investor scrutiny.

“Anthropic is a landmark catalyst,” noted a second banker, adding that there was still a feeling in the market that investors were holding cash back to take part in the mammoth listing.

The sellside has been bullish in their prognosis on the deal, but buyside sentiment is not as jubilant as it might have been six months ago.

Several investors speaking to ECM Pulse have expressed a lack of enthusiasm for Anthropic’s mega listing.

A fast-tracked index inclusion will take place after its Nasdaq listing and this means there should easily be enough market-making money in the book for Anthropic to cross the line. But a lack of conviction could put real pressure on the stock once listed.

If IPO buyers feel like they have been somewhat forced into purchasing the stock to match its predicted index weighting, fingers will be readily hovering on the sell trigger to protect annual returns.

Investors have already reportedly pushed back on the company’s gargantuan USD 2tn valuation target, given slowing revenue growth. An omen, perhaps, of open-weight competitors starting to take market share from Anthropic.

“No chance in hell it comes anywhere near USD 2tn,” said an equity investor looking at the deal, who declined to share their view of fair valuation.

The investor added that many people were relying on views that were two months out of date or were out of touch with the company’s reality.

While Anthropic’s growth margin remains impressive, slower acceleration of its turnover will increase fears that its model will become less valuable in a more commoditised world, a topic of conversation at a San Francisco Tech Week event last week.

During a panel, Saša Zdjelar, chief security officer at Nvidia, said his thinking on AI models had changed over the past few years.

“Previously, I thought everything would be about the model,” he said. “Now I’m more convinced than ever that the model is increasingly irrelevant and that it’s all about the system and the harness.”

This sort of language from an executive at Nvidia is the kind of talk that will give Anthropic CEO, Dario Amodei, or his equivalent at OpenAI, Sam Altman, nightmares.

But as Nvidia’s last results showed, the global chip giant is increasingly seeing its revenue concentrated among non-hyperscaler guidance.

With the debate over AI safety continuing to dominate headlines, there are now requests from some officials for Anthropic to pause its listing.

Such a result would allow the business to take stock and address any safety issues by slowing development, which would also help its financial position by allowing it to cut capex.

But an Anthropic postponement in this environment might just prove the catalyst that bursts the AI valuation bubble.

While this may mean capital flowing elsewhere next year, perhaps toward real asset-focused IPOs like BASF’s listing of its agricultural solutions business next year, the pain it would likely cause to equities in the short term would likely be severe.