There's a Possibility of the IPO Market Heating Up Again? Various AI Companies Prepare for Public Debut at Impressive Valuations in 2025
It's common sense that a two-year bull market with sky-high valuations would spur a flurry of initial public offerings (IPOs), right? Surprisingly, that isn't the case. Some companies are playing it cool, waiting for volatility to subside and more stable markets to emerge. As of mid-2024, 946 IPOs had raised $76.4 billion globally, falling short of the $95.8 billion raised in the same period the previous year, according to S&P Global Market Intelligence.
The Federal Reserve has begun cutting interest rates, and the market anticipates further reductions in 2025. With an economy on solid footing and some signs of stability, these conditions could ignite a wave of IPO activity next year. Rumors swirl that several AI companies are prepping for their public debuts at mammoth valuations. Keep an eye on these key players.
The Perfect Conditions
In October, Nasdaq CEO Adena Friedman predicted a resurgence of the IPO market. She revealed that many late-stage companies are still readying themselves for their time in the limelight, preferring to wait for a year of top-notch performance before going public. The cost of capital has remained high, as late-stage start-ups rely on it to grow their businesses.
Given absolute valuations for AI stocks in the current market, it's no wonder that big AI companies are priming for their market debuts. In late September, a Cerebras competitor to Nvidia filed for its IPO prospectus. Cerebras has developed a chip that's as big as a silicon wafer, boasting 20 times the speed of Nvidia's chips. Though Cerebras had initially eyed a $1 billion raise at an $8 billion valuation, reports from October hinted at a possible delay due to a national security review.
Switch, a data center company, also looks like a potential IPO contender. In September, Reuters reported that Switch was contemplating a deal that would price the company at an eye-popping $40 billion. Switch's renewable energy data centers boast high-profile clients like Nvidia, Dell, and FedEx. A 2022 buyout by private investors valued Switch at $11 billion. Its appeal for companies requiring massive energy-intensive data storage positions it well in the AI space.
Just days ago, Reuters mentioned that Coreweave, an AI company, is eyeing a 2025 public debut at a massive $35 billion valuation. Coreweave recently secured $650 million in a secondary share sale, allegedly pushing its valuation past $23 billion. Coreweave offers cloud-based GPUs to AI companies, and Nvidia is an investor.
Will IPO Activity Happen?
Many companies have been holding out for lower interest rates. Given the current valuations of AI stocks, private companies in the sector have a strong incentive to go public as soon as possible.
However, it's been a volatile few years, and the U.S. economy hasn't yet declared victory against inflation. Fears linger that the new administration could adopt inflationary policies, and if the Fed fails to reduce interest rates as anticipated, the IPO market recovery may falter.
Regardless, launching an IPO is a marathon, not a sprint. Given the mounting pressure, I expect renewed momentum in 2025.
Insights:
- Technology advances and the AI boom create new opportunities for IPO candidates, particularly in developing countries.
- Regulatory changes and compliance demands, like the EU AI Act, affect AI development and its deployment.
- Geopolitical factors, supply chain issues, and investor expectations influence the AI stock market's trajectory and impact IPO activity.
- The anticipated IPO wave is fueled by high valuations and investor interest in AI-driven companies.
- IPO activity tends to be higher in the year following U.S. elections, potentially reigniting the entire VC ecosystem.
With the Federal Reserve's interest rate cuts and a predicted economic stability in 2025, investing in finance becomes an attractive option for many. In light of these conditions, several AI companies are reportedly preparing for their IPO debuts, aiming to raise significant funding.
Given the high valuations of AI stocks and the expectation of reduced interest rates, it's no surprise that late-stage start-ups are considering entering the public market to secure additional financing for their growth.
