Selloff in tech stocks threatens to make IPO sales even more difficult

For Wall Street investment bankers, the deepest selloff in technology stocks in nearly two years threatens to worsen a painful reality: Investors simply aren’t eager to participate in the industry’s next big initial public offering.

Even before Wednesday’s decline — which sent the Nasdaq 100 down 3.7%, its biggest drop since October 2022 — there were signs that interest in new tech stock offerings was waning.

A quarterly survey of hedge funds and long-only clients by Jefferies Financial Group Inc. found that fewer than 20% said the history of recent technology IPOs was compelling enough to make them more likely to buy new ones. That was down significantly from the previous survey, when 56% said yes.

The response reflects the relatively weak performance of the handful of technology companies that have gone public this year, seeking to capitalize on gains that have driven the market to record highs.

Take Waystar Holding Corp. and Rubrik Inc., which are up about 8% and 9%, respectively, weak compared with the 30% or more gains many investors are expecting on the first day. They are also well below the sharp jumps seen by many of the big tech companies in the S&P 500. Some companies have fared worse — Ibotta Inc., a maker of e-commerce software that went public in April, fell 23%.

“Investors are looking for Goldilocks assets that are growing above market value,” said Becky Steinthal, head of technology, media and telecommunications equity capital markets at Jefferies.

The lower appetite for new deals comes as the broader market outlook remains gloomy amid the U.S. presidential election and the timing of the Federal Reserve’s first interest rate cut, which investors expect in September.

The latest earnings reports add to the uncertainty. Shares fell Wednesday after Tesla Inc. earnings disappointed and Alphabet Inc.’s results stoked fears that a surge in artificial intelligence spending may not deliver the bonanza investors had been betting on.

Of course, there are exceptions among recent tech IPOs. Shares of OneStream Inc., a cloud finance platform, rose 34% in its market debut Wednesday after its IPO price exceeded its range to raise about $490 million. Shares of Reddit Inc. are up 85% since it first sold shares in March.

U.S. IPO volume this year has totaled $6.5 billion, or about a third of the total, according to data compiled by Bloomberg. While that was significantly more robust than the $659 million raised during the same period last year, the number of deals in the coming months is becoming increasingly slim, with anticipated offerings like StubHub Inc. being shelved.

The outlook is likely to keep the pace of tech IPOs low. What’s more, many of the big startups that might eventually turn to the stock market to raise cash don’t seem to have a pressing need to do so, either because they’ve raised money before or because of deals that allowed investors to cash out privately.

“The only pipeline that seems really strong in tech is the one that starts in the second quarter of 2025,” Steinthal said. “At the end of the day, most of what we’re hearing and seeing is a lack of urgency to get deals done before the middle of next year.”