After a prolonged period of stagnation, the IPO market seems to be picking up pace once again. Colin Stewart, Morgan Stanley’s global head of technology equity capital markets, suggested that the market is back on track. He mentioned in an interview with CNBC that there could be 10 to 15 tech companies going public before the end of 2024. Additionally, he predicted an even better year in 2025. The recent surge in IPO activity, with high pricing and strong trading, indicates a positive trend for the future.
The halt in IPOs that began in 2022 was primarily due to soaring inflation and rising interest rates. These factors led investors to shy away from risk, resulting in decreased tech valuations and causing many tech companies to postpone their IPO plans. This was a stark contrast to the record-breaking activity seen in the previous years, characterized by a flurry of deals at astronomical revenue multiples.
The Turning Point
The IPO market showed signs of life in September with the debut of companies like Instacart and Klaviyo. Momentum picked up in recent months, highlighted by Reddit’s IPO as the first major social media company to go public since 2019. Astera Labs, a data center connectivity chip company, also saw a remarkable first day of trading, with its stock soaring well above the IPO price. The influx of investment in artificial intelligence-related companies is contributing to this upward trend.
Morgan Stanley’s involvement in leading IPOs like Reddit and Astera Labs positioned the firm to earn substantial fees. Other Wall Street players like Goldman Sachs also facilitated successful tech IPOs, such as Rubrik, a data management software developer, whose stock jumped 16% on its debut at the NYSE.
Market Insights and Future Outlook
Colin Stewart provided insights into the current market landscape, noting that valuations have retreated from the peak levels of 2021. Multiples in software and other tech sectors have reverted to levels seen in 2018 and 2019. Despite this, Stewart described the market as more comfortable with paying for growth, albeit not at the levels seen in 2021. Companies are starting to see the benefits of being public entities at fair prices for growth.
However, some of the most valuable late-stage companies like SpaceX, Stripe, and Databricks are yet to go public. While Stewart expressed interest in taking these companies public, he acknowledged the challenges they face. These companies possess significant scale, growth potential, and ample capital from investors, creating a focus on future investments rather than immediate IPO plans.
The revival of the IPO market presents opportunities for tech companies to access public funding and expand their operations. With a positive outlook for 2025 and beyond, the market seems poised for continued growth and resurgence in tech IPO activity.