Initial Public Offerings on Hold: What’s Next for AI Companies?

The market buzz around initial public offerings (IPOs) during a bull market hasn’t translated into action. Despite high valuations, many companies continue to delay their public listings.

Throughout the first three quarters of 2024, global IPOs raised $76.4 billion across 946 offerings. This amount falls short compared to the $95.8 billion garnered during the same timeframe last year, as reported by S&P Global Market Intelligence.

Preparing for Change

The Federal Reserve’s recent trend of lowering interest rates may shape the landscape for future IPOs. Market expectations suggest that rates could continue to decline into 2025. Coupled with a stable economy, this environment might encourage companies to pursue public offerings. Reports indicate that several artificial intelligence firms are preparing to launch at significant valuations next year.

In October, Nasdaq (NASDAQ: NDAQ) CEO Adena Friedman expressed optimism regarding a potential upswing in IPO activity. As she noted, many late-stage startups are leaning toward public offerings but prefer to demonstrate consistent performance first:

“Late-stage companies want to have 12 months of really strong performance before they start to think about coming out. The cost of capital environment has made it so that companies relying on capital to grow are definitely trading at a discount.”

A surge in AI stock valuations helps explain the interest from major players to go public. For instance, competitor to Nvidia, Cerebras, recently filed an IPO prospectus targeting a $1 billion raise at an $8 billion valuation. However, it faces delays tied to a national security review.

Image source: Getty Images.

Data center firm Switch is also eyeing the IPO market. Reports in September indicated that Switch is considering a deal that would value it at $40 billion. Having taken the company private in 2022 for $11 billion, the firm’s renewable energy-focused data centers serve clients like Nvidia, Dell, and FedEx.

Additionally, Coreweave, an AI cloud services provider, is preparing to go public next year with a valuation projected at $35 billion. Recent reports noted their $650 million secondary share sale boosted their valuation to over $23 billion. Nvidia also invests in Coreweave, highlighting its prominence in this competitive space.

Outlook for IPO Activity

Many companies are holding back, awaiting further drops in interest rates. Given the current AI valuation landscape, private firms have a compelling reason to go public quickly.

Yet, the past few years have been tumultuous. The ongoing battle against inflation remains a concern, with speculations regarding potential future policies under a new presidential administration. If the Federal Reserve limits rate reductions, it could hinder the IPO market’s recovery.

Going public is a lengthy process. With the built-up demand for such offerings, signs point toward a rejuvenated IPO market in 2025.

Should You Invest $1,000 in Nasdaq Now?

Before considering stock purchases in Nasdaq, it’s essential to evaluate all options:

The Motley Fool Stock Advisor analyst team has identified what they believe are the 10 best stocks to invest in right now—Nasdaq is not among them. The chosen stocks are projected to deliver substantial returns in the coming years.

Reflect on when Nvidia featured on this list on April 15, 2005. An investment of $1,000 then would have grown to an astonishing $847,211!*

Stock Advisor provides investors with a structured approach for success, offering guidance on portfolio building, regular updates from analysts, and two new stock selections each month. Since its inception in 2002, the Stock Advisor service has more than quadrupled the S&P 500’s returns.*

See the 10 stocks »

*Stock Advisor returns as of December 2, 2024

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Nvidia, and S&P Global. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.