In the Markets Now: Inspecting IPOs

Coming into 2026, investors expected a boom year in initial public offerings (IPOs). There was (and is) a large backlog of late-stage private companies, a conducive macro environment (stable interest rates, solid economy), and healthy investor appetite for AI-adjacent growth stories. And while the war in Iran has curbed animal spirits to an extent, it still seems likely that the U.S. will see several widely anticipated IPOs by year-end (including the mega-sized offerings of Anthropic, OpenAI, and SpaceX).

The size and name recognition of these firms (plus the cocktail party appeal of potentially owning them) puts the IPO market into a bigger spotlight than it has held for many years. Aside from the fact that the macro environment hasn’t been ultra-favorable to a booming IPO market (e.g., rising interest rates post-2021), there’s also the structural issue of companies staying private longer than they used to. There are many reasons for this trend. Private markets are deeper and more flexible than they used to be, liquidity options for private owners/employees are more available, and public companies have a higher regulatory burden than they once did. But it has impacted the IPO market and changed the dynamic for investors. IPOs today are often larger, more mature companies, which may be less risky investments than early-stage start-ups but it can also mean that a lot of the growth typically expected of a younger/newly public company is already baked into the valuation (i.e., the growth has already been captured by private investors before the public offering).

But what does history say? Is IPO hype warranted by performance? Typically, no. IPOs can lead to the occasional home run, but long-term returns have generally been poor. The average IPO (of nearly 10,000 IPOs since 1980) underperformed the market by over 20% in the first three years (measured from close of first trading day). Nearly 60% of these companies returned 0% or less over the three years that followed their IPOs.

Of course, no one expects IPOs to underperform. The average first day return for that same group of 10,000 stocks was nearly 20%. And the greater the hype, the bigger that initial pop can be. Of the nearly 1,000 IPOs that feel within the peak dotcom euphoria of 1999-2000, the average first day return was 65% (while the average 3-year buy-and-hold return was -53%). More recently, the SPAC boom of 2020-2021 saw a similar level of retail participation, enthusiasm, and price appreciation… for a time. Since 2020, nearly 600 SPACs completed mergers and became public companies, and over 90% trade below their IPO price – with a median return of -87%! Hype and easy access are one thing, fundamentals are very much another.

The optimistic view of the potential IPO boom ahead is that these companies have reached a size and level of importance at which public markets are the most appropriate listing venue. Public markets offer a more diverse and (theoretically) longer-term investor base, while requiring levels of governance, transparency, and oversight that foster trust and legitimacy. The cynical view might be that the private capital pool is nearing saturation, and that AI-adjacent private companies need to go public to fund investments in the business and to allow early investors and employees an easier way to realize gains on their stock.

The truth is likely somewhere in the middle, but the data on IPOs is unambiguous: hype has rarely translated into long-term gains, and the majority of IPOs have been money-losing investments over the longer-term. That doesn’t mean every touted IPO will fail…but it is an argument for caution when excitement runs high.

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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