Anthropic's initial public offering is shaping up as an increasingly expensive and risky proposition after the artificial intelligence company released third-quarter financial results on Nov. 2 that showed its rate of revenue growth slowing and its expenses climbing at a faster pace than in prior quarters. Several analysts told Fortune that the math and the historical record now weigh against Anthropic producing stellar returns for investors.

That dynamic may explain why institutional investors are reportedly pressing the company and its IPO advisors to price shares toward the lower end of the $1.5 trillion to $2 trillion valuation range Anthropic is seeking in its public stock offering. Even that may be too pricey, according to analysts. A listing at even the bottom of that range would place Anthropic among the most valuable companies ever to go public.

A valuation without precedent

Any IPO valuation above roughly $1.41 trillion would ask buyers to pay more than $40 for every dollar of revenue Anthropic generated over the past year. Just 14 of the 4,110 IPOs priced between 1980 and 2024 reached that level, according to a study by Jay Ritter, director of the University of Florida's IPO Initiative. What's more, those offerings delivered lower average returns than the broader market, Ritter said.

Measured against the roughly $35.3 billion in revenue Anthropic booked over the past four quarters, a valuation range of $1.5 trillion to $2 trillion implies investors paying between $43 and $57 for every dollar of sales the company generated in the past 12 months.

Ritter told Fortune that to justify a valuation north of $1.4 trillion, Anthropic needs a path toward annual after-tax profits of at least $100 billion. Only a handful of companies have ever earned that much in a year, he said, including Alphabet, Nvidia, Apple, and Microsoft.

Margins squeezed by short-term compute

In the third quarter, Anthropic's revenue rose nearly 47% from the previous quarter, while compute and infrastructure expenses climbed about 77% to $9.9 billion. Roughly half of that compute bill—about $5 billion—came from purchases of short-term capacity. Anthropic typically orders compute 12 to 18 months in advance but is forced to buy more expensive short-term capacity when customer demand or research needs exceed what it has secured. The company attributed the decline in its adjusted operating margin to 15% from 19% primarily to those short-term costs.

Tomasz Tunguz, founder and general partner of Theory Ventures, told Fortune that higher compute costs would put mounting pressure on Anthropic's margins, though he noted that the company's implied gross margin was still a healthy 85%. Gross margin counts only the cost of serving customers; it excludes the far larger sums Anthropic spends training models and on research, which are booked as separate operating expenses.

The pressure on adjusted operating margins arrived sooner than Tony Trzcinka, an investment-grade portfolio manager at Impax Asset Management, said he expected. "The key question is whether revenue can compound fast enough to absorb the future commitments and outpace compute cost," he told Fortune. Trzcinka expects Anthropic's existing obligations and interconnected relationships to limit its ability to borrow at the kinds of low interest rates available to investment-grade companies. That means any debt taken on to fund compute capacity would be expensive, further weighing on margins.

Paying more for compute can also help an AI company generate future revenue, said Campbell Hutcheson, a senior researcher at Epoch AI. Frontier models, such as those Anthropic builds, can command premium prices and help improve the training and inference efficiency of other models, he told Fortune. Because revenue growth often depends on reaching a capability or product threshold first—as with ChatGPT and Anthropic's own Claude Code—he said it can be rational for labs to pay a premium to get there first. Hutcheson said Anthropic continues to show "very strong growth, high gross margins" while investing heavily in AI research.

A deep cash cushion

Anthropic held about $131.8 billion in cash, cash equivalents, and short-term investments as of Sept. 30, giving it resources to keep investing while it works to improve those economics. Its operations generated $6.6 billion in cash during the first nine months of the year. Ritter said those reserves, combined with IPO proceeds, would allow considerable investment. Trzcinka also views liquidity as a positive for bondholders, while watching for further spending commitments and any borrowing under the company's revolving credit facility.

Valuers see little reason to move

In estimating what Anthropic could be worth to shareholders, Aswath Damodaran, a finance professor at New York University's Stern School of Business, looked a decade ahead. His Oct. 28 valuation—produced before Anthropic released its third-quarter results—assumed annual revenue reaching $1 trillion by 2036, a target operating margin of 27.5%, and an estimated $100 billion in IPO proceeds. Those assumptions produced an equity value of about $1.475 trillion, which he described as sitting at the lower end of the $1.5 trillion to $2 trillion range. That 27.5% target sits far above the 15% adjusted operating margin Anthropic posted in the third quarter, leaving his model to assume considerable improvement in profitability over the decade ahead.

Damodaran told Fortune that the third-quarter figures gave him little reason to revise his valuation, calling them "the most telegraphed 3rd quarter number of all time." His earlier post had already discussed slowing revenue growth and continued margin volatility, he said. "If my intrinsic value changed significantly based on this news story, it would be neither intrinsic nor value, just a pricing chase."

Ritter likewise saw no big surprises in the third-quarter numbers, but his research highlights the risk of paying for exceptional growth in advance. In his study, the 14 IPOs that commanded the kind of price-to-sales ratio Anthropic is asking investors to accept delivered returns averaging 15.4% below the broader stock market, measured from their offer prices over holding periods of up to three years, although some companies outperformed. Each company had at least $100 million in revenue in the 12 months before listing, adjusted for inflation to 2025 dollars.

Anthropic has substantial upside potential, Ritter said, but "a lot of things have to go right" for its revenue and profits to grow enough to support such a high valuation. The next checkpoint in that debate arrives with the pricing of the offering itself.

This story was originally featured on Fortune.com.