Once upon a time, unicorn companies -- privately owned, but valued in excess of $1 billion -- were a rare breed. Lately, there seem to be whole herds of them.
Take Anduril for example. The privately held artificial intelligence and defense company founded by Oculus VR inventor Palmer Luckey first hit the magic $1 billion private market value back in 2019. But Anduril didn't stop there. Growing steadily over the past half-decade, the privately traded defense stock last week raised $2.5 billion in new cash, and the company as a whole is now valued at $30.5 billion, according to a report from Bloomberg.
That's a growth rate any investor would love to get a piece of. And while you cannot invest in Anduril stock yet, you might soon be able to.
Because Anduril says it's going to IPO.
Image source: Getty Images.
Anduril's big news
Anduril Chairman Trae Stephens told Bloomberg his company aims to "scale into the largest problems for the national security community." Of particular note, Anduril recently took over a gigantic $22 billion Pentagon augmented reality contract from Microsoft. But Anduril needs cash to reach the scale it wants "to shore up the balance sheet and make sure we have the ability to deploy capital into these manufacturing and production problem sets that we're working on."
Pre-IPO companies like Anduril have three ways they can do that. They can take out loans (at currently high interest rates). Or they can hold an IPO and sell their shares to public investors for cash. Or they can sell shares discretely, in a private stock offering. This last route is the one Anduril took, but in his interview with Bloomberg, Stephens made it clear he's not ruling out an IPO -- at all.
"Long term we continue to believe that Anduril is the shape of a publicly traded company," said Stephens. "We're not in any rapid path to doing that [but] we're certainly going through the processes required to prepare for doing something like that in the medium term."
The time is ripe for an IPO
Stephens and Luckey might want to shift that focus into the short term, however, because circumstances may never be better to make Anduril a popular IPO stock. It's been only a couple of weeks now since Ukraine launched Operation Spiderweb, deploying more than 100 artificial intelligence (AI)-guided drones from trucks to attack airfields across Russia, causing billions of dollars' worth of damage to military assets -- apparently with no casualties -- for an investment measured in thousands of dollars.
The memory of that mission hadn't even faded before Israel launched its own surprise attack on Iran, Operation Rising Lion, last week. While most headlines focus on the exploits of Israel's hundreds of fighter aircraft bombing military and nuclear targets in Iran, Israel's Mossad spy agency apparently also used drones and remotely operated weapons systems to great effect.
These attacks weren't just reminiscent of Operation Spiderweb. They were reminiscent of Anduril's own artificial intelligence drone technology. With both successes fresh in investors' minds right now, there may be no better time to launch an IPO to capitalize on this free publicity.
How to value Anduril
But let's not get irrationally exuberant here. What's good for Anduril isn't necessarily good for investors. As popular a stock as Anduril might be if it IPOs, that doesn't necessarily mean you should buy it.
Consider what a $30.5 billion valuation means for a future publicly traded Anduril stock.
According to Luckey, Anduril roughly doubled its 2023 revenue in 2024, making "about a billion" dollars in 2024 sales. The company isn't believed to be profitable yet, so that doesn't mean much in terms of P/E ratios. But it does mean that Anduril sells for a price-to-sales ratio of about 30.5.
Compare that to alternatives in the "new defense tech" space. AeroVironment (AVAV +0.35%), which up until about the time of Russia's 2022 invasion of Ukraine was the biggest name in U.S. drone stocks, costs 7.4 times trailing sales -- one quarter of Anduril's valuation. And AeroVironment is a profitable defense stock, earning about $33 million last year.
Karman Holdings (KRMN +3.80%), itself a recent defense stock IPO (that I've argued is also overpriced) is closer to Anduril's valuation at 17.3 times sales, but still only about half as expensive. And again, Karman is already earning profits.
Don't even ask about more traditional defense contractors like General Dynamics, Lockheed Martin, or Northrop Grumman. Combined, those three giants earned more than $13 billion last year, but their P/S ratios range from only 1.6 (GD and Lockheed) to 1.9 times sales. That's way cheaper than any of the new defense tech stocks, Anduril included, and with far longer track records of success.
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Key Data Points
The upshot for investors
I'm not here to knock Anduril. As a company, I think it's pretty great, and a superb success story in American business. I have high (if cautious) hopes that Anduril might shake up an entrenched and overly concentrated defense industry that's basically made up of companies like General D, LockMart, and Northrop, and help the Pentagon to spend taxpayer defense dollars more wisely.
I just don't think you should invest in Anduril stock. Not at today's valuation, at least.
