Circle Stock Could Set Off an IPO Frenzy. How to Avoid Getting Burned.

Circle Internet Group signage at the New York Stock Exchange during its IPO. (Michael Nagle/Bloomberg)

Forget bulls and bears. Unicorns—start-ups worth at least $1 billion—are the creatures that best symbolize the sudden resurgence of animal spirits on Wall Street. But investors should know better than to put their faith in mythical creatures.

The fantastic beasts haven’t been shy lately. Fintech Chime Financial, drone maker AIRO Group Holdings, and space exploration company Voyager Technologies went public in June and enjoyed solid debuts. Then there’s Circle Internet Group. The stablecoin company surged nearly 170% on its first day of trading, and shares are now up almost 600% from their offering price. The company, which raised over $1 billion in its offering, has a market valuation of $50 billion.

“If you take into account Circle’s size, the first-month performance is unprecedented,” says Matt Kennedy, a senior strategist at Renaissance Capital, an IPO research and investing firm*.* “Billion-dollar IPOs do not historically behave like this in the first month of trading.”

And don’t forget CoreWeave, which Kennedy says deserves an “honorable mention” when discussing IPO performance. The artificial-intelligence tech company had the misfortune of going public in late March, near the height of fears about tariffs. CoreWeave had a tepid debut after reducing its offering price and trimming the number of shares it was selling. But the stock has been one of Wall Street’s biggest momentum darlings since then, quadrupling from its IPO price.

Investors shouldn’t get caught up in the hype. IPOs often pull back after strong debuts once insiders and early backers who have access to the stock at the lower offering price are able to sell shares after lockup periods expire, typically six months from the IPO date. Renaissance’s Kennedy also noted that early returns for IPOs are often juiced by a combination of momentum, fear of missing out, and speculative interest from retail traders.

Still, the success of these and other IPOs in the past few months is likely to lead more companies filing in the not-so-distant future. “There was always the expectation that IPOs would recover later this year or early 2026,” says Isabelle Freidheim, managing partner of Athena Capital, which invests in private companies. “There is certainly sufficient demand.”

Supply isn’t an issue. Research firm CB Insights notes there are more than 1,250 private unicorns around the world. Design software firm Figma, robo-advisor Wealthfront, and crypto exchange Gemini Trust all recently filed for confidential IPOs with the Securities and Exchange Commission. They don’t have to publicly disclose key financial information to investors until they are closer to the IPO date.

Other large unicorns may soon go public, too. Buy now, pay later firm Klarna, valued at $14.6 billion, has already filed for an IPO, while defense tech firm Anduril Industries, worth $30.5 billion, is expected to do so soon, according to comments founder and CEO Palmer Luckey made on CNBC this month.

“I’ve been saying we’re six months away from a good IPO market for three years now, and it’s finally true,” says Dave Peinsipp, a partner at Cooley LLP, a law firm that helped bring Life360, Sweetgreen, and Maplebear, which does business as Instacart, public in the past few years. “This pent-up investment desire is good.”

Investors need to do their homework, of course. Not every unicorn is destined to be the next Circle or CoreWeave. And as always, pay attention to price. Buying an IPO after it’s already doubled or tripled could be a recipe for disaster.

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