Tech IPOs are roaring after 'years of Prohibition' — it may be too good

The tech IPO market is experiencing a robust revival, marked by significant first-day gains from recent listings such as cryptocurrency exchange Bullish (+84%), design software vendor Figma (tripled), and crypto firm Circle (+168%). This resurgence, attributed to strong investor demand, a record-setting Nasdaq, and a substantial pipeline of high-value startups, has market leaders like the NYSE and Nasdaq CEOs anticipating continued activity, while new SEC head Paul Atkins is actively seeking to streamline the public offering process. Despite this bullish sentiment, industry observers like venture capitalist Bill Gurley criticize the large first-day pops as indicative of mispricing, advocating for direct listings, and IPO advisor Lise Buyer cautions that current market exuberance, though backed by stronger company fundamentals than the dot-com era, shows overheating risks reminiscent of 1999-2000.

Analysis

The U.S. technology IPO market is demonstrating a significant resurgence after a three-year downturn driven by inflation and interest rate hikes. This revival is evidenced by exceptional first-day trading performances, including a more than tripling for Figma, a 168% gain for Circle, and an 84% increase for Bullish. The broader market support is reflected in the Nasdaq's 40% rise from its April lows and positive debuts for other tech firms like Chime (+37%) and eToro (+29%). Exchange executives from both the NYSE and Nasdaq have confirmed a strong pipeline of companies preparing to go public in the second half of the year, further bolstered by new SEC leadership expressing intent to ease the public offering process. However, this bullish momentum is accompanied by significant debate and caution. Prominent voices like venture capitalist Bill Gurley criticize the large first-day pops as intentional mispricings that disadvantage issuing companies, while IPO advisor Lise Buyer warns that the gap between institutional and retail investor pricing is at a level unseen since the 1999-2000 dot-com bubble. Although current IPO candidates possess stronger fundamentals than those of the dot-com era, Buyer notes the exuberance may be unsustainable, suggesting the market is at risk of overheating.

Key Decisions for Investors

• Investors should approach new tech IPOs with caution, as the significant first-day gains seen in companies like Figma and Circle may reflect market overheating and unsustainable retail exuberance rather than fundamental valuation.
• Monitor the performance of secondary offerings from recent IPOs, such as Circle's, as their successful absorption by the market will be a key indicator of sustained institutional appetite beyond initial listing hype.
• Given the debate on IPO mispricing, consider waiting for post-listing volatility to subside before establishing positions, as this may offer more fundamentally sound entry points compared to chasing speculative day-one pops.
• Track any concrete regulatory proposals from the new SEC leadership, as measures to simplify the IPO process could significantly increase the volume and velocity of new listings, impacting overall market supply and dynamics.