Navigating the Hot IPO Market: A Critical Look at Industry Trends

The stock market’s exuberance, coupled with a surge in Initial Public Offerings (IPOs), has triggered a renewed interest in newly listed companies. Fear of missing out, or “FOMOIPO,” is real, but a closer inspection reveals complexities beneath the surface. Many of these IPOs center around Artificial Intelligence (AI) or cryptocurrency, potentially amplifying the risks compared to more traditional offerings.

Numbers don’t lie. Through September 2025, the U.S. witnessed 161 IPOs, exceeding 2024’s total of 150, with the third quarter marking the most active period since 2021. CoreWeave (CRWV), an AI cloud platform, and Circle Internet Group (CRCL), a crypto trading platform, illustrate this trend, posting impressive gains since their IPOs. Yet, both remain unprofitable, a detail that warrants caution.
>

The IPO market tends to flourish when asset prices are elevated, edging towards a market peak. This is according to Nick Einhorn, Renaissance Capital’s Director of Research. The real risk emerges when the tide turns, potentially causing IPO stocks to plummet. IPOs, by their nature, come with increased risk. These companies lack the established track record of publicly traded giants.

Historically, IPOs served as a vital mechanism for companies to raise capital, essential for expansion, particularly in capital-intensive industries. Now, though capital-raising remains a factor, it can take a backseat to providing early investors with a lucrative exit or offering employees with stock options a clear valuation.

The initial “pop,” that immediate surge on the first trading day, gets lots of attention. Renaissance Capital notes an average first-day return of 27% for IPOs exceeding $100 million in 2025, a notable increase from 2024’s 16%. Yet, this frenzy calls for a tempered approach. Waiting for a few months post-IPO, allowing time for quarterly earnings reports, might prove a wiser strategy.
>

It’s worth remembering the “lock-up period,” typically 90 to 180 days post-IPO. Once this period concludes, company insiders can sell their shares, which could trigger selling pressure. Jay Ritter, a finance professor at the University of Florida specializing in IPOs, advocates for evaluating more established companies, those with at least $100 million in revenue at the time of their public debut. McGraw Hill (MH) and StubHub Holdings (STUB) meet this criterion. Mature companies, on average, tend to perform comparably to the broader market, whereas less mature entities often struggle.

When considering IPO stocks, standard valuation metrics matter. Price-to-sales ratios, especially for unprofitable companies, are key. Don’t get caught up in the IPO hype, instead view it as you would any other stock. Evaluate its fundamentals.

Some 2025 IPOs sidestep the current trends, presenting potentially more grounded investment opportunities. Venture Global (VG), for example, pursued an IPO to fuel its ambitious liquefied natural gas venture. While carrying significant debt, its shares trade at less than 10 times projected earnings. UBS analyst Manav Gupta upgraded the energy stock to “Buy,” projecting a price target of $18.

Smithfield Foods (SFD), once public before being taken private by WH Group in 2013, returned to the public market. Analysts forecast earnings per share to grow from $1.88 in 2024 to $2.35 in 2025, with a P/E ratio below 10. A majority of analysts covering this consumer staples stock rate it as “Buy,” suggesting a potential 25% increase from its recent closing price.

If you’re captivated by the allure of investing in new companies, limit your investment to what you can afford to lose. Consider diversifying via exchange-traded funds (ETFs), while recognizing that this path might entail volatility.

Renaissance IPO (IPO) adds new IPO stocks quarterly, removing those traded for over three years. The average age of holdings sits around 1.3 years, with minimal overlap with the S&P 500. First Trust US Equity Opportunities ETF (FPX) mirrors the IPOX-100 U.S. index of liquid IPOs, which captures a large portion of the IPO market capitalization from the preceding four years. Its performance outpaces the IPO, while having a similar expense ratio.

The recent excitement around IPOs demands scrutiny. It’s not merely about jumping on the bandwagon. Solid research, an awareness of risk, and a willingness to look beyond the initial hype are crucial. Don’t fall for the “next big thing” without proper research and due diligence.

Read Original

Keywords: IPO market, IPO investing, AI IPOs, Cryptocurrency IPOs, IPO risk, IPO analysis, Post-IPO strategy, IPO ETFs