Wall Street Shifts Focus from Stock Splits to IPO Mania
For most of the past 30 months, bulls have dominated Wall Street. Before the recent downturn, the time-honored Dow Jones Industrial Average, the key S&P 500, and the growth-focused Nasdaq Composite all reached record-closing highs.
These gains largely stem from the rise of artificial intelligence (AI), yet it’s undeniable that stock-split euphoria also played a significant role in elevating the valuations of foundational companies last year.
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A stock split allows public companies to alter their share price and outstanding share count without affecting their market capitalization or operational performance. This cosmetic change makes shares appear more affordable for retail investors, particularly when fractional-share purchases are not an option.
Investors generally prefer forward splits, which lower a company’s share price to make it more approachable. However, the fervor for stock splits that captured attention in 2024 appears to be waning in favor of a new trend: IPO mania.
Declining Interest in Stock Splits
In 2024, over a dozen high-profile companies executed a stock split, with nearly all being forward splits. Many came from industry leaders in AI and technology. For example, heavyweights like Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), Super Micro Computer, and Lam Research all conducted respective 10-for-1 forward splits between June and October.
Notably, Nvidia and Broadcom are among the few public companies that have reached a trillion-dollar market cap, both playing crucial roles in the AI sector’s development. Nvidia’s Hopper (H100) and its successor Blackwell GPU architecture maintain a dominant market share in AI-accelerated data centers.
Broadcom’s hardware supports the connection of up to 32,000 GPUs simultaneously, which is essential for enhancing computing speed and minimizing latency in AI applications.
Additionally, prominent consumer-facing firms joined the stock-split trend in 2024. Walmart initiated a 3-for-1 forward split, closely followed by a 50-for-1 split from Chipotle Mexican Grill, marking one of the largest splits in New York Stock Exchange history.
Despite the enthusiasm from retail investors for stock-split stocks, no significant splits were announced in the first quarter. The recent corrections in the S&P 500 and Nasdaq Composite, along with the underperformance of the “Magnificent Seven” compared to broader market indexes, may dampen expectations for future splits.
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The Rise of IPOs
In the last six weeks, a new trend known as IPO mania has emerged on Wall Street.
On March 28, AI infrastructure company CoreWeave (NASDAQ: CRWV) launched at $40 per share. Although this was below the anticipated range, CoreWeave’s stock soared 42% on April 1, closing at $52.57 per share, leading to a valuation near $25 billion.
CoreWeave is backed by Nvidia, acquiring 250,000 Hopper chips to establish itself as a premier AI-GPU cloud provider. Given PwC’s prediction that AI could contribute $15.7 trillion to the global economy by 2030, CoreWeave’s role in this transformation is significant.
However, it’s the IPO of conservative media company Newsmax (NYSE: NMAX) that has captured the most attention. Newsmax raised $75 million by pricing its shares at $10 each on March 31. By the end of the day, shares soared to $83.51, reaching an intra-day peak of $265 on April 1, resulting in a market cap close to $21 billion.
The surge in Newsmax’s shares appears driven by retail investors reminiscent of the previous fervor surrounding Trump Media & Technology Group during Trump’s presidential campaign.
Concerns on the Sustainability of IPO Excitement
While the rally around high-profile IPOs can be thrilling, the sustainability of this trend is questionable.
CoreWeave is certainly growing rapidly; it generated $1.92 billion in sales last year, up from $228.9 million in 2023. However, it remains to be seen if the current enthusiasm can persist.
CoreWeave and Newsmax Face Struggles Amidst Market Hype
CoreWeave has resorted to aggressive spending and debt financing to fuel its growth. In 2024, the company’s interest expenses surpassed its operating income, resulting in a substantial net loss of $863.4 million. Investors are concerned about the impact of Nvidia’s rapid GPU upgrade cycle, which risks quickly depreciating CoreWeave’s Hopper chips in its AI-driven data centers. This may also lead to diminished demand from businesses seeking computing power.
Another significant issue for CoreWeave is the historical pattern of bubbles in emerging technologies. The company’s performance echoes the experiences of past tech trends, where investors often overestimate the utility and adoption rates. More than 30 years of market history shows that companies with high valuation premiums are prone to substantial corrections.
Newsmax presents a comparable case with equally concerning indicators. According to the company’s latest annual filing, sales surged by 26% in 2024, reaching $171 million. While traditional advertising revenue saw a modest growth of only 1%, digital subscriptions and a staggering 1,006% increase in affiliate fees drove this uptick. Like CoreWeave, Newsmax’s revenue trend appears positive but is overshadowed by financial challenges.
Despite increased sales, Newsmax’s general and administrative expenses soared to $153.9 million in 2024, up from $100.9 million in 2023. This resulted in a net loss of $72.1 million, raising concerns about its profitability. The company has yet to show it can generate consistent profits and is currently trading at an alarming valuation of 122 times its trailing-12-month sales. Such a high price-to-sales multiple is historically unsustainable, especially for media stocks.
As IPO mania captures market attention, it remains uncertain how long this trend will last. Historical data suggests that neither CoreWeave nor Newsmax is likely to sustain their current valuations in the long term.
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*Stock Advisor returns as of April 1, 2025
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Lam Research, Nvidia, and Walmart. The Motley Fool recommends Broadcom and suggests shorting March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
