3. Performance of recent IPOs
The IPO class of 2024 generally priced constructively and traded well in the aftermarket, with over 85% of these IPOs pricing within or above their initial marketing price ranges. Overall, the 2024 IPO class rose over 20% from issuance through to year-end, with larger IPOs (i.e., in excess of $100 million), showing an aftermarket performance of nearly 30%.² When IPOs as an asset class perform well, investor demand for IPOs grows and further IPO issuance typically follows.
4. Economic stability
As the economy emerged from the pandemic, inflation began to rise and fears of a recession became pervasive in the narrative. Over the past few quarters, however, recessionary fears have significantly diminished as GDP growth forecasts for the US eclipsed 2% for 2025 and 2026, compared with a mid-2023 consensus GDP forecast for 2024 of just 0.7%, according to Bloomberg. As of the end of 2024, the probability of a recession in the following 12 months declined to 20%, down considerably from 65% at the end of 2022.³ With prospects for continued economic strength as a tailwind, the optimism for a more vibrant IPO market increases.
5. Broadening market recovery
The market recovery is beginning to extend beyond large tech companies, reaching various sectors and market segments. The Russell 2000 index, which contains many small and mid-cap growth companies, is nearing its 2021 highs, up 36% from September 2023 lows, and is nearing new record highs for the first time since late 2021. Since the IPO market is traditionally weighted toward growth-stage companies, broader-based interest in diverse capital investment across sectors and stages of development is critical for driving increased activity in the IPO market.
6. Investor sentiment and capital inflows
Investor confidence in US equities remains strong, attracting $176 billion in net inflows from mid-October to early December 2024, while the rest of the world saw less than $20 billion in net inflows.⁴ Hedge fund assets reached record highs of $4.5 trillion in October, highlighting the market’s liquidity and investor optimism.⁵ With capital to deploy and the IPO market “performing,” investors will be inclined to seek new investment opportunities from promising new companies.
7. Private equity and venture capital
Private equity (PE) and venture capital (VC) are poised to drive further IPO activity. In recent periods, PE IPO activity has been notably low, with PE-backed IPOs accounting for just 3% of the global IPO count in 2022, and an average of only 8% from 2022 to 2024, compared with an average of 22% over the decade prior to 2022.⁶ This has created a backlog of aging portfolio companies. In addition, the narrowing gap between private and public market valuations makes IPOs an attractive exit strategy for these institutional investors, signaling a robust pipeline of future offerings.
8. AI paradigm shift
The rapid adoption of generative AI and large language models (LLMs) is attracting significant capital, particularly in the private markets. Bloomberg forecasts that artificial intelligence (AI) and LLMs will generate $1.6 trillion in revenue by 2032, representing a 37% compound annual growth rate (CAGR) from $93 billion in 2023. This growth is expected to be fueled by over $2 trillion in capital expenditures by 2032, according to Bloomberg forecasts. While the private markets have eagerly funded AI and LLMs to date, ultimately the public markets are better suited to finance the longer-term development and deployment of these technologies.
9. Strengthening M&A environment
M&A activity has seen a significant decline over the past few years, with the number of deals declining by 24% in 2022, 14% in 2023 and 12% in 2024 compared to prior years. However, the M&A environment is expected to become more accommodative under the new US presidential administration. As a result, companies should be able to scale quicker ahead of a public listing, and the ability to use public stock as acquisition currency becomes more attractive.
