As SpaceX and OpenAI Prepare for Public Debuts, What Recent IPO History Signals
The Takeaway
- AI-focused tech IPOs show strong gains, unlike most other recent listings.
- Median performance for last year’s tech IPOs has dropped over 32%.
- Upcoming mega IPOs like SpaceX face scrutiny over high valuations.
Smart-ring maker Oura and crypto company Blockchain.com said last week they had filed paperwork to go public, adding to a growing number of companies, including OpenAI, that are making moves to list in the wake of SpaceX’s upcoming mega initial public offering.
If recent history is any guide, the startups closely tied to AI will do well. For the rest, the outlook may be bleaker.
Tech listings have been sparse so far this year, but two stocks related to AI have done well. Those are AI chipmaker Cerebras Systems and geothermal power company Fervo Energy, which aims to generate electricity for AI data centers. Both have gained roughly 40% since their IPOs this month. A weaker performer has been satellite defense firm HawkEye 360, which has gained about 17% since its offering earlier this month.
Of the tech companies that went public last year, the median performance has dropped over 32%, according to data compiled by The Information. Among the worst performers: fintech company Klarna, which as of Friday’s close had fallen almost 60% from its September IPO price; fintech Chime, down 34%; ticketing platform StubHub, which has lost nearly 60%; and design tool Figma, down over 30%.
The two outliers on the plus side from last year are AI cloud computing company CoreWeave, up over 160%, and stablecoin issuer Circle, which has surged 265% from its IPO price. Intense demand for AI cloud computing capacity is underwriting CoreWeave’s rally. And Circle has benefited from legislation passed last year that boosted the legitimacy of stablecoins as a mainstream financial instrument.
Whether the next crop of IPO candidates make their public debuts will depend largely on the state of the stock market. Long-term bond yields spiked to 19-year highs last week, amid continuing uncertainty about the Iran war and oil prices. At some point, rising bond yields are likely to choke off the stock market rally, which may prompt companies to delay IPOs.
That’s already proved to be the case for crypto firms looking to go public. Grayscale and Kraken both filed confidentially to go public last year and haven’t moved ahead, reflecting the bleak crypto market. Whether Blockchain.com moves forward is an open question.
Investor reception of SpaceX’s blockbuster IPO, expected to go to market in mid-June, is also likely to affect other companies’ decisions. The rocket ship company’s filing last week revealed slowing revenue growth and deepening cash burn as the company remade itself as an AI data center company. Its hoped-for valuation of $1.75 billion is well above the value of its core businesses, based on valuations of companies in comparable industries.
“A lot of these IPOs feel priced to perfection,” Darian Shirazi, a managing partner at seed-focused venture capital fund Gradient Ventures, said on TITV earlier this month, noting that overinflated entry points leave little upside for investors in the public market.
“The point of an IPO is to raise capital, market your company, and then also to make sure your investors are going to make money, especially the new investors in the IPO. So I worry about that for the ones that are very highly priced,” he added.
The IPO candidates to watch are OpenAI, which is prepared to file for an IPO in the next few weeks, likely an effort to go public ahead of rival Anthropic. Both are likely to try to raise tens of billions of dollars in their public listings.
These listings will finally return cash to venture firms’ limited partners, the pensions and endowments that invest in VC funds, for which cash distributions over the past few years have been few and far between.