The IPO Surge: Should You Join the Rush?

The market is buzzing with new companies going public, and it's tempting to jump in. But here's the catch: many of these new stocks are tied to risky sectors like AI and cryptocurrency.

A Surge in IPOs

So far this year, there have been 161 IPOs in the U.S., already surpassing last year's total of 150. The third quarter alone saw 64 IPOs, raising a whopping $15.3 billion—the biggest quarter for new issuances since 2021.

Standout IPOs

Two standout IPOs this year are CoreWeave and Circle Internet Group.

• CoreWeave, a cloud platform for AI computing, started at $40 per share in March and is now at $137, giving it a market cap of $71 billion.
• Circle Internet Group, a bitcoin trading platform, went public at $31 in June and is now trading at $133, with a market value of $30 billion.

Both companies are still unprofitable, which adds to the risk.

The Risks of IPOs

IPOs have always been risky because these companies are often younger and less established. Historically, they've been a way for companies to raise capital to expand. But today, IPOs also serve as an exit strategy for early investors and a way for employees with stock compensation to see the value of their shares.

The Hype and the Reality

The hype around IPOs can be intense, with investors hoping for a big "pop" on the first day of trading. So far in 2025, the average first-day return for IPOs over $100 million has been 27%, up from 16% in 2024. However, this excitement comes with risks. Experts suggest waiting a few months after an IPO to see how the company performs before investing.

Smart Investing Strategies

For those interested in IPOs, it's wise to look at more mature companies—those with at least $100 million in revenue. These companies tend to perform better in the long run. It's also important to consider valuation measures, like price-to-sales ratios, especially for companies that aren't yet profitable.

Beyond Trendy Sectors

Not all IPOs are in trendy sectors. Venture Global, an energy company, went public to raise capital for its ambitious plans to produce and sell liquefied natural gas. Despite its high debt, the stock has dropped since its IPO, but some analysts see potential. Smithfield Foods, a pork producer, also went public this year after being taken private in 2013. Analysts expect steady earnings growth, and most recommend buying the stock.

Final Advice

If you're considering investing in IPOs, it's best to limit your investment to what you can afford to lose. You can also diversify by choosing an exchange-traded fund (ETF) that focuses on IPOs. However, be prepared for a bumpy ride, as these funds can be volatile.