Zoom Communications (NASDAQ:ZM) rallied roughly 10% on Monday following a research note from Baird analyst William Power that highlighted the potential windfall embedded in the company’s 2023 equity investment in AI developer Anthropic.
Zoom put $51 million into Anthropic last year when the AI company was valued at about $4.5 billion. Media reports now point to a much larger current valuation for Anthropic - around $350 billion - and Baird uses that figure to estimate Zoom’s stake could be worth between $2 billion and $4 billion, with the range driven by different dilution assumptions.
Power left his rating on Zoom unchanged at Outperform and retained a $95 price target. He described the Anthropic holding as a meaningful and underappreciated asset on Zoom’s balance sheet, writing: "ZM is literally invested in Anthropic’s Claude success, and as Anthropic IPO rumors accelerate, the investment could become even more meaningful."
The potential implied value of the Anthropic stake is large relative to Zoom’s reported market capitalization and enterprise value. Baird cited a market capitalization of approximately $25 billion and an enterprise value near $17 billion. Using the lower-end estimate of a $2 billion stake value, Baird calculates the implied value for Zoom’s underlying business would fall to roughly $15 billion.
Baird also pointed to a realized accounting gain that already reflects part of this strategic exposure. Zoom recognized a $406.1 million gain on strategic investments in the third quarter, an amount Baird believes was largely driven by the Anthropic holding. That gain boosted GAAP earnings per share by $1.33 in the quarter.
Zoom’s share price has been essentially flat so far this year, down about 1% year-to-date compared with a 1% gain for the S&P 500. Baird suggests that as reports of Anthropic moving closer to a potential initial public offering surface, the investment could create incremental upside to Zoom’s valuation depending on how the Anthropic stake ultimately converts into cash or publicly traded equity.
Sectors affected: Communications, technology, and equity markets.