Surge in IPOs Highlights Risks and Opportunities in 2025 Market

The initial public offering (IPO) market in the United States has experienced a significant surge in 2025, with a total of 161 IPOs recorded by September 30, according to research firm Renaissance Capital. This figure surpasses the 150 IPOs for the entirety of 2024 and includes 64 IPOs in the third quarter alone, raising a cumulative $15.3 billion. This represents the largest quarterly issuance since 2021, capturing investor interest amid stock market highs.

Many of this year’s IPOs are closely linked to high-profile sectors such as artificial intelligence and cryptocurrency, which raises questions about their long-term viability. For instance, CoreWeave (CRWV), a cloud platform for AI computing, debuted at $40 a share in March and reached $137 by the end of September, giving it a market capitalization of $71 billion. Similarly, Circle Internet Group (CRCL), a trading platform for bitcoin, saw its shares rise from $31 in June to $133, resulting in a market value of $30 billion. Notably, both companies remain unprofitable, according to S&P Global Market Intelligence.

Nick Einhorn, director of research at Renaissance Capital, noted that the IPO market tends to thrive when asset prices are inflated, indicating that the current environment could be precarious. “The danger,” he explained, “is that when the cycle turns, IPO stocks can fall sharply.” This volatility is a hallmark of IPOs, as the companies are often younger and less established than those already trading on exchanges, lacking a proven track record.

Historically, IPOs have served as a mechanism for companies to raise capital to fund expansion, especially during periods of industrial growth. Over the years, however, the landscape has shifted dramatically, particularly towards technology-driven enterprises. Nowadays, many companies pursue IPOs not only to secure capital but also to provide an exit strategy for early investors or to offer liquidity for employees with stock options.

The excitement surrounding IPOs often centers on their initial trading days, where a significant “pop” in share price can yield considerable returns for investors. This year, the average first-day return for IPOs valued at $100 million or more stands at 27%, compared to 16% in 2024. Nevertheless, the combination of opportunity and risk in this market is palpable.

For prospective investors, patience may be prudent. Waiting several months after an IPO, especially until the company has released one or two quarterly earnings reports, can provide better insights into its performance. Moreover, understanding the “lock-up period” is essential. This period, typically ranging from 90 to 180 days post-IPO, restricts insiders from selling their shares. Once this window closes, selling pressure may increase, impacting stock prices.

Jay Ritter, a finance professor at the University of Florida and an expert in IPOs, advises investors to focus on more mature companies, defined as those generating at least $100 million in revenue at the time of their IPO. This year, 42 companies meet this criterion, including McGraw Hill (MH) and StubHub Holdings (STUB). Ritter has observed that mature companies tend to perform comparably to the broader market, while less-established firms often struggle.

Investors should carefully evaluate valuation metrics, particularly price-to-sales ratios for unprofitable companies, and apply standard investment analysis methods. Ritter emphasizes the importance of treating IPOs like any other stock, irrespective of whether they have been trading for three months or thirty years.

While many of 2025’s most prominent IPOs are associated with emerging sectors, some traditional companies also present interesting opportunities. Venture Global (VG), for instance, aimed to raise capital through its IPO to support its ambitious plans for liquefied natural gas production from the U.S. Gulf Coast. Despite facing significant debt of $31 billion, the stock, which debuted at $24, currently trades around $14, reflecting its challenges.

In another example, pork producer Smithfield Foods (SFD) returned to public markets in January after being taken private in 2013. The company sold 13% of itself at $20 a share, with analysts projecting earnings per share of $2.35 in 2025, an increase from $1.88 in 2024. Six out of seven analysts covering the stock have issued “Buy” ratings, suggesting potential for a 25% gain.

For those looking to invest in new companies, limiting investments to amounts one can afford to lose is advisable. Diversifying risk through exchange-traded funds (ETFs) can also be beneficial, though volatility is likely. Renaissance Capital’s IPO fund adds new stocks quarterly and has shown resilience, achieving a 14.5% return in 2025, which is comparable to the 14.8% gain of the S&P 500 index.

The First Trust US Equity Opportunities ETF (FPX), less volatile with a similar expense ratio of 0.61%, seeks to mirror the IPOX-100 U.S. index, representing approximately 85% of the total market capitalization of IPOs from the past four years, and has gained 39.3% in 2025.

As the IPO landscape continues to evolve, investors are encouraged to conduct thorough research and consider both risks and rewards before entering this dynamic market.