Investment Review №336. Choosing a direction

Eight years ago, the IPO market was one of the main drivers of returns in investors’ portfolios. Now, however, companies reportedly wait 4–5 years to go public due to weak demand. The reasons are familiar: elevated inflation, high interest rates, concerns about a potential recession, etc. In 2025, the investment environment visibly improved, with companies raising over $43 billion versus about $31 billion in 2024. The number of $1 billion-plus IPOs increased from five in 2024 to nine in 2025.    

Why is explosive growth plausible now? Even with the renewed interest in going public, now we see that not all hyped IPOs have rewarded investors. Figma (FIG)—once viewed as a key Adobe (ADBE) competitor and acquisition target— is down roughly 70% from its peak. Circle (CRLC), a crypto firm with strong political backing in Washington and broad support for the industry, has been roughly flat since its listing. Only CoreWeave (CRWV) has delivered more than 100% gains post‑IPO, despite shedding around 40% of its market value over the last three months. Interest rates have started to trend lower for several years and are likely to keep declining into 2026. The process has not been quick, but companies have meaningfully adapted their business models to the new environment. Today, investors are primarily attracted to issuers with stable, positive cash flow and strong operating discipline—conditions the market effectively “imposed” on new listings after 2021. Based on my expectations, these trends could push the number of IPOs above 200, with total proceeds of around $60 billion—almost a 40% increase in dollar terms versus last year.  

Many experts argue that the headline names of the upcoming IPO cycle will be in artificial intelligence and advanced technologies. However, high-profile players—such as OpenAI (ChatGPT) and Anthropic (Claude)—are not cash-flow positive and have prioritized market-share capture over operational discipline. Even at the height of their popularity, they could still see outcomes akin to Figma or Circle, as they are now carrying tens of billions of dollars in cumulative losses. An OpenAI listing is more likely in 2027–2028, as I wrote previously. By contrast, investors are likely to favor operationally disciplined companies that effectively deploy AI or augment existing product lines with AI features.  
The likely leaders in terms of issuance will be mining and refining companies, as well as industrial firms with direct or indirect exposure to reshoring (the return of manufacturing to the U.S.). Within industrials, aerospace and defense could also stand out this year, even though it is not traditionally a heavy-IPO sector. A separate “crown jewel” is SpaceX. Elon Musk’s space giant is valued at over $350 billion with $15 billion in revenue. A SpaceX IPO could be a defining moment for the entire private space industry. Also worth highlighting are private-equity-backed companies, which appear well positioned for successful public debuts too.   

Another clear beneficiary of a robust IPO calendar is the investment banking sector. The leading players include Morgan Stanley (MS), Goldman Sachs (GS), J.P. Morgan (JPM), and Bank of America (BAC). These companies stand to earn higher fee income than in the prior year, which can act as a powerful tailwind for their share prices. The underwriting fee from a single SpaceX IPO could be about $1 billion, equivalent to 4% of Morgan Stanley’s operating income. If IPOs are delayed, it will be important to monitor the weight of investment banks in a portfolio. However, if we see a wave of announcements, bank stocks are likely to be among the key beneficiaries.