AI IPO Fever Dreams Spoiled By Persistent Wall Street Selloff

AI was supposed to drive the revival of the IPO market - this year. But fears about the impact of its affect on a host of other industries - as well as doubts about its actual benefit to operations and finances - have led to growing concerns that have driven equity markets down. 

There is a school of thought that says a rebound is inevitable, but a more prudent point of view may be that as the Silicon Valley hype machine becomes less credible, reversion to the mean is emerging and so a consensus return to rational expectations will take over. This may not be good for IPOs and those who were counting their Maseratis to come, but it makes sense. JL

Corrie Driebusch reports in the Wall Street Journal:

This was supposed to be a blockbuster year for initial public offerings. AI fears spoiled the party as concerns AI will upend the software industry sent stocks tumbling earlier this month. The selloff accelerated this week after a viral blog post about the threat posed by AI. Bankers and investors now expect the few mega-offerings to dominate the year. Most private tech companies—many that have spent years biding their time—will be forced to keep waiting it out. Three-quarters of tech stocks that debuted last year are now trading below their IPO prices, with the whole class of 2025 tech IPOs down an average of 18% through Tuesday’s close.

This was supposed to be a blockbuster year for initial public offerings. Artificial-intelligence fears spoiled the party. 

Investors have been thirsting for new issues, and big names including SpaceX, OpenAI and Anthropic are readying debuts for later this year. The momentum created an opening for dozens of smaller, mainly private-equity backed software firms that had been waiting in the wings.

Then fears that AI will upend the software industry sent stocks tumbling earlier this month. The selloff accelerated Monday after a viral blog post about the threat posed by AI.

Bankers and investors now expect the few mega-offerings to dominate the year. Most private tech companies—many that have spent years biding their time—will be forced to keep waiting it out. The U.S. IPO market, dormant for years, finally started to look up for tech companies last year.

Among the early casualties are Blackstone-backed Liftoff Mobile, a marketing platform that pulled its planned offering earlier this month, and the fintech-powered broker Clear Street, which withdrew its IPO plans last week, citing poor market conditions. 

Three-quarters of tech stocks that debuted last year are now trading below their IPO prices, with the whole class of 2025 tech IPOs down an average of 18% through Tuesday’s close, according to Dealogic, which analyzed companies that raised at least $50 million in offerings. 

Few companies signify the risk that comes with buying a hot tech IPO more than Figma. The software company debuted in late July, raising about $1.2 billion for the company and investors who cashed out, making it the biggest venture-backed tech IPO since 2021. 

Figma’s shares soared 250% in a debut so splashy that bankers came under pressure for leaving money on the table by underpricing it. Its success ushered in a wave of tech offerings later in the year, including StubHub, Klarna and Navan.

All four companies closed Tuesday below their IPO prices. In the case of Figma, hype for the design-software company waned on fears that AI will be able to more easily create apps and webpages. The stock got a small boost when Figma posted better-than-expected revenue growth and addressed its AI strategy in its latest earnings release last week. 

Fund managers who started the year optimistic for the slate of new companies coming to market now say their appetite for allocating capital to new issues is low. While the S&P 500 is roughly flat so far this year, the swift selloff in tech shares makes modeling future revenues difficult, fund managers say. Others say they would rather scoop up beaten-down shares of already public companies than take risks on newly listed software firms.

There remains an appetite for AI-adjacent offerings, such as Cerebras Systems, which designs chips it says can run AI models. Cerebras delayed its IPO last year, but bankers and investors say to watch for it in 2026.

Bankers also expect select cryptocurrency companies to fare better than pure tech companies. Some of the few IPO standouts in 2025 were crypto companies such as Circle Internet Group, which closed up about 98% from its IPO price on Tuesday. This year could bring the stock-market debut of crypto exchange Kraken, which was recently valued at $20 billion.

 

Wall Street isn’t overly concerned about a potential dearth of tech IPOs this year. SpaceX is aiming for a June or July offering while OpenAI and Anthropic are considering late 2026 debuts. SpaceX could be the largest IPO of all time and target a valuation of more than $1 trillion.

“The giants are going to have incredible demand. Everybody and their parents will want to hold them,” said Matt Witheiler, who specializes in private late-stage growth investing at Wellington Management. “What’s going to happen with software is some companies will be worth zero.”

Witheiler said there are still reasons for optimism for smaller tech companies. Not every fund manager will be able to buy shares of the giants when they go public. Small- and midcap-focused managers will be looking for deals, too.

“There’s a lot of dollars in strategies that are not megacap strategies,” he said.