The IPO Stock Frenzy Is Just Getting Started. Don’t Get Burned.

The floodgates are opening for companies to go public. How to avoid getting burned.

ILLUSTRATION BY TIMO LENZEN

Key Points

About This Summary

• The IPO market is experiencing a resurgence, with over 150 companies going public this year, raising $28.5 billion.
• First-day gains are averaging 26%, but many IPOs have shaky financials, and some, like StubHub, have underperformed.
• Upcoming IPOs include Solera, Wealthfront, and Grayscale Investments, with Databricks, Stripe, and Fanatics in 2026.

StubHub may be indispensable if you’re desperate to buy playoff tickets and don’t mind overpaying. StubHub Holding’s stock, also pricey, may be less appealing. StubHub fizzled in its first day of trading, closing 6% below its initial-public-offering price of $23.50.

It’s a reminder that while IPOs are booming again, plenty of companies are going public with inflated prices and shaky financial prospects. While some of the new crop look solid—and you could make a mint on a trade—it may be best to wait for the froth to settle before buying.

After a hiatus of a few years, IPO mania is back. More than 150 private companies have made their debut on the stock market this year through traditional IPOs, up from 99 at this time last year and 76 in 2023, according to Renaissance Capital. Companies have raised $28.5 billion in capital, up from $24 billion last year. First-day gains are averaging 26%, the best since 2020, according to Trivariate Research.

The wave may still be building as companies involved in everything from crypto to artificial intelligence—and even a trio of companies making new kinds of small nuclear reactors—go public or make plans to do so. Renaissance Capital estimates 40 to 60 additional IPOs by the end of the year.

“We are seeing optimism return to the IPO markets, and it’s broader than just the AI theme,” says Michael Bayer, an adjunct lecturer of finance at Babson College and chief financial officer of Wasabi Technologies, a data storage firm.

The payoffs can be huge. Sizzling IPOs this year have included Circle Internet Group, Figma, Newsmax, AIRO Group Holdings, Bullish, and Voyager Technologies —closing up 82% to 735% on their first day from their initial offering price. Buy-now, pay-later company Klarna Group gained more than 30%.

Some smaller IPOs are also proving lucrative. WaterBridge Infrastructure, for instance, had a successful debut on Sept. 17, closing up nearly 15% from its offering price of $20. The firm supplies water-treatment services to the oil-and-gas industry—a thriving business—and raised more than $600 million through its IPO.

Yet for every big winner, there’s a list of flops and floundering stocks. StubHub was a disappointment. Gemini Space Station, the crypto money manager led by Cameron and Tyler Winklevoss, is now trading below its IPO price. Firefly Aerospace nearly doubled on its first day but recently traded at its offering price of $45.

One hurdle for investors is that IPO pricing is an opaque art, handled by investment bankers, company insiders, and institutional investors. Banks like Goldman Sachs, Citigroup, and Morgan Stanley often serve as bookrunners—handling the investment roadshows, figuring out pricing, and allocating shares to institutional clients. Smaller banks also participate.

In some cases, winners are obvious before they hit the market. When an IPO is “oversubscribed,” meaning there’s more demand than supply of shares, the offering price rises. The stock is likely to open strong and pop on its first day due to pent-up demand. However, if the price drifts down before its debut, it may have been overpriced, making first-day gains more questionable.

Getting into an IPO before it starts trading can be ideal, but it isn’t easy. Institutional clients typically get first dibs. Brokerages like Fidelity and Charles Schwab may get some shares, and firms such as Robinhood Markets and Moomoo are taking steps to make it easier. Hot IPOs, however, are prized commodities. And unless you’re a high-net-worth investor, you may not be allocated shares or receive only a small amount.

“The initial allocation game is for hedge funds,” says Josef Schuster, chief executive and founder of IPOX Schuster, a research firm. “We hope to buy and hold IPOs for years to come. Let the market cool and then you can try and pick winners.”

Volatility isn’t an IPO bug; it’s a feature. Privately held firms usually issue a small portion of their equity—about 15% to 20%—which then has to go through a public price-discovery process. There’s usually an initial lockup period of 180 days, after which early investors can start to sell, and stocks can be especially volatile with a limited float. It also takes a few months for brokerages to start issuing research, bringing in bigger institutional investors.

The early days can be a wild ride. AI company CoreWeave, for one, had a tepid debut when it went public in late March. It tumbled further in its first few weeks of trading, dipping below its IPO price. But it has since taken off, thanks to renewed demand for tech and AI stocks as well as strong revenue growth and guidance. The stock is now trading just below $120, nearly triple its offering price.

Bear in mind that multiples on newly public tech stocks often look extreme. Circle trades for more than 130 times earnings estimates. Figma goes for 184 times estimates. Gemini is trading at 21.6 times 2024 sales, a sizable premium to rival Coinbase Global, valued at 13 times revenue.

Klarna celebrates its initial public offering on the New York Stock Exchange.

Steep multiples may reflect the fact that firms are plowing revenue into growth initiatives, leaving less for the bottom line. But “profitability matters,” as Trivariate founder Adam Parker recently noted.

Companies that lose money or are unprofitable “strongly underperform” those with positive net income in their first 18 months as public companies, Parker wrote in a recent report. IPOs without a majority seller (owning at least 50% of shares) underperform peers, he added, and IPOs with a share lockup lag behind those with no lockup over the first two to three years.

It’s far from clear that IPOs in general are a good bet. Since 2020, the average IPO has trailed its industry average by 4% over the following three years from its first day closing price, according to Parker. The Renaissance IPO exchange-traded fund is having a good run this year, up 25%, but its 10.2% annualized return over the past decade trails the S&P 500 index’s 15%.

While there’s certainly some froth in the market, there are also encouraging signs. A big difference between the late 1990s and today is that companies back then went public earlier in their life cycles, while now they’re staying private for longer, says Adam Farstrup, head of multi-asset for the Americas at Schroders. That means there may be more higher-quality names today, though they could still be overpriced.

Should you buy any of the recent crop? Some certainly look appealing.

Consider MNTN, a company that helps monitor ads on internet-connected TVs. It went public in May at $16 and trades around $20, up more than 25% from the IPO price. It’s expected to generate a profit in 2026 and is trading at just 23 times earnings estimates. Seven of the nine analysts covering it rate MNTN a Buy, with a price target of about $33.67, 67% higher than current levels.

Investors aiming to capitalize on the crypto boom may want to consider brokerage eToro Group over pricier options such as Gemini and Galaxy Digital. EToro, which also went public in May, reported better-than-expected quarterly results in August. The stock is down due to rising costs. But that’s an overreaction, according to Cantor Fitzgerald analyst Brett Knoblauch, who has a Buy rating and an $80 price target on the stock, up more than 85% from current levels. EToro trades at 20 times earnings estimates, far below Robinhood’s 72.

Bullish, the crypto exchange that went public in August, may also be proving its mettle. The company reported a net profit of $108 million for the second quarter. Citi analyst Peter Christiansen raised his price target on the stock to $70, up nearly 20% from current prices, following its earnings. He cited increased confidence in growth expectations for 2026.

Smithfield Foods is another unlikely success story. The pork producer was taken private in 2013 by WH Group, a Chinese company, and went public again in January. Even though it priced its offering below the range, shares have since gained more than 20% from the IPO price. The stock trades for only 10 times earnings estimates, as well, a discount to rivals Conagra Brands, Tyson Foods, and Hormel Foods.

If none of this year’s IPOs look appealing, plenty of big ones may be coming.

Firms that may go public over the next year include software company Solera, robo-advisor Wealthfront, and crypto firm Grayscale Investments. Highly anticipated debuts in 2026 include so-called unicorns (worth at least $1 billion) such as AI analytics leader Databricks, financial-technology firms Stripe and Revolut, and sports apparel and betting company Fanatics.

Databricks was valued at $100 billion in its last round of financing. Fanatics had a valuation of more than $30 billion.

Then there are the mega unicorns: OpenAI and SpaceX. While both companies appear well capitalized now, they could decide to go public so that early investors can start cashing out.

“We will see more unicorns come to market,” says Mike Bellin, the U.S. IPO leader for PwC. “There eventually has to be true liquidity to reward employees and early investors and give companies currency for acquisitions.”

One other way to play the IPO boom, of course, is with the middlemen: investment banks like Goldman, Morgan Stanley, and Citi, along with smaller firms like Jefferies Financial Group. All are reporting pickups in investment banking revenue. If the IPO party is only getting started, the bankers should continue to profit, even if stocks of newly public companies flame out.

Write to Paul R. La Monica at paul.lamonica@barrons.com