Key Takeaways:
- Reddit experienced a 45% gain in the week following its trading debut, despite a steep decline towards the end of the week.
- The IPO market in the United States showed heightened activity in the first quarter of 2024.
- According to a report from EY, there were 16 more IPOs in the U.S. during the first quarter of 2024 compared to the same period last year, generating $5.8 billion more in proceeds.
- Two-thirds of private equity firms surveyed by EY anticipate potential interest rate reductions later in the year, which could drive further IPO activity in 2024.
- EY also predicts a potential wave of AI-related IPOs in the coming years, given the advancements in AI technology and its increasing integration across industries.
Despite experiencing a notable decline at the end of the week, shares of Reddit (RDDT) demonstrated a remarkable 45% gain in the week following its debut as a public company. This surge suggests a growing appetite for new tech stocks amidst a heating up of the market for initial public offerings (IPOs) in the U.S.
The first quarter of 2024 witnessed a notable increase in IPO activity globally, particularly in the U.S., according to a report from EY. In the U.S. alone, there were 16 more IPOs generating approximately $5.8 billion more in proceeds compared to the same period in 2023.
Moreover, stock prices of companies that went public across various industries have outpaced their IPO prices by a wider margin this year compared to last year. EY attributes this trend to growing confidence among both issuers and investors, fueled by optimism surrounding the potential lowering of interest rates.
A survey conducted by EY revealed that two-thirds of private equity (PE) firms anticipate interest rate reductions later in the year, which could further boost IPO activity throughout the remainder of 2024.
In addition, EY highlighted the potential for a wave of IPOs from companies related to artificial intelligence (AI) in the near future, driven by increased demand for AI technologies. Astera Labs (ALAB), a company specializing in chip-based connectivity products aimed at enhancing AI efficiency, recently began trading and saw its stock price more than double in value since its debut.
However, EY cautioned that despite the significant number of AI-related companies identified globally, the majority of them, particularly in the U.S., are still in the seed or early venture capital funding rounds. As a result, the development of an AI IPO wave may take time to materialize in the coming years.