Dive Brief:

• U.S. initial public offerings raised $8.4 billion during the first quarter, or more than triple the total during a slump in Q1 2023, as investors anticipated reduced borrowing costs, equity prices rose and the economy belied forecasts of a downturn, EY said.
• The share price of companies that went public during the period increased 38% above the offering price, highlighting growing confidence among investors, EY said. The number of IPOs surged 48% during the quarter to 49 from 33 during Q1 2023.
• “We remain optimistic about a return to more normalized IPO activity,” Mark Schwartz, EY’s Americas IPO and SPAC advisory leader, said in a statement. “The path to get there will depend on the stability of valuations, whether volatility and recessionary fears remain in check and how the road to declining interest rates develops.”

Dive Insight:

Investor enthusiasm for artificial intelligence may spur companies to go public in coming months, reinforcing a revival in the broader IPO market, EY said.

During its market debut on March 20, shares in Astera Labs, which provide hardware for cloud computing data centers, surged 72% on the prospect that it can both foster growth and generate robust levels of revenue, EY said.

“Should Astera maintain market interest following its IPO, this momentum may pave the way for an increase in AI-related public offerings,” according to EY.

Shares in Astera, which is backed by Intel, closed normal trading Monday at $71.12, or 98% higher than the $36 per share offer price that the company set before the IPO. Shares in Reddit, which went public the same week as Astera, also surged well beyond the offer price.

“The after-market performance of recent IPOs will serve as a key barometer for the health of the IPO market,” according to EY.

“In order to assess the timing and velocity of a rebound in IPO activity, market participants will be watching for a broadening of the equity rally beyond mega caps, continued macroeconomic strength, and the depth and breadth of the publicly filed IPO backlog,” EY said.

The number of IPOs worldwide fell 7% during the first quarter and proceeds rose 7% to $23.7 billion, EY said.

“Market participants are navigating uncertainties stemming from recent economic fluctuations, heightened geopolitical tensions and a global election year, with the stock markets having already priced in rate cuts expectation in various major economies,” according to EY.

Among IPO markets outside the U.S., Japan stood out thanks to “a more conducive environment for IPOs,” EY said. As of March 18, the share prices of Japan-listed companies that went public since the start of this year on average doubled compared with the offering prices.

“Post-IPO performance will be a litmus test for others in deciding if they should come to market,” Rachel Gerring, the IPO leader for EY Americas, said in a statement.

EY data for Q1 included IPOs completed through March 18 plus offerings expected by March 31.