ANALYSIS: Strong Post-IPO Performance, AI Fuel IPO Engine in Q1

The first quarter of the new year brought some strong debuts by companies going public, including impressive post-IPO performances. This rediscovered enthusiasm for new offerings was fueled, in no small part, by the hype and hyperbole of AI remaking the economy.

IPO Market Quality Improves

Solely looking at total new offerings year-over-year, last quarter’s performance was comparable to that of Q1 2023. The number of initial public offerings of at least $1 million priced on US exchanges increased by only three, from 47 to 50 in 2024, or 6.4%.

Those figures improved despite SPAC IPOs retrenching from 11 offerings raising nearly $900 million in last year’s first quarter to only six IPOs in the latest quarter, pulling in about $668 million.

Digging deeper into Q1’s results gives investors more reason for optimism. The capital raised year-over-year grew from $3.8 billion to over $9.6 billion, an increase of over 150%.

Offering size, another harbinger of health with larger offerings indicating a more robust market, also shifted upward, with a notable increase in very large (raising at least $500 million) offerings.

In Q1 2023, only one IPO, measuring machines developer NEXTracker, raised more than $500 million ($734 million). The market for large offerings improved substantially this year with seven offerings individually topping $500 million raised, and two of those, sports apparel and fitness equipment manufacturer Amer Sports and Kaspi.KZ JSC, a developer of financial technology application solutions, broke the $1 billion threshold.

Galderma, a Swiss skin-care company, also did well with its very large $2.6 billion IPO, albeit on Europe’s SIX Swiss Exchange.

Reddit, AI Lead the Way Higher

AI is disrupting seemingly every industry. Everything AI is hot right now—and so is investor FOMO. Fear of missing out on the artificial intelligence play has really helped propel issues that represent a way into the AI transformation of the economy.

Reddit, the social networking platform company whose subreddit users (group chats about specialized topics, including investing) helped bring the term “meme stocks” to common parlance and helped cause pain to certain hedge funds, made a successful debut as a public company in March, in no small part because many investors bought its AI pitch.

Only a month before, Reddit signed a deal worth about $60 million annually, licensing its considerable data for AI training, an essential step in creating an AI program. Reddit’s shares rose 48% on its first day of trading.

Other companies going public also benefited from AI fever, but probably none more than Astera Labs. Unlike Reddit, the semiconductor connectivity company is a true AI play, and its stock price reaped handsome rewards because of it. Astera has been the best US listing over $500 million this year, with its stock already more than doubling.

IPO Markets Are Mixed Globally

This year’s successful large IPOs have returned IPO market leadership to the US from China, which is still in the doldrums.

Hong Kong is suffering its fourth year of declines in capital raised. Mainland China has fared even worse, with a 79% decline in capital raised just this year, falling to only $2.7 billion. That compares to over $94 billion raised in 2021. Meanwhile, deals have picked up in Europe.

Supreme Court Rules for Business

On April 12, the US Supreme Court in Macquarie Infrastructure Corp. v. Moab Partners unanimously ruled that a securities class action must point to a company statement that was misleading to maintain that cause of action. Here, the class action plaintiff pleaded both misleading omissions and half-truths by the company. This decision represents a small but important win for businesses defending themselves against securities class actions, and the holding brings welcome clarity to pleading requirements.

A “pure omission” under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 (the principal securities anti-fraud regulations) where the company was silent about the matter is not sufficient, the court said in its narrow ruling.

The case centers on disclosures under the “Management’s Discussion and Analysis” requirement of Item 303 of Regulation S-K. Liability attaches based on statements made but this is a rare occurrence where the issue before the Supreme Court included pure omissions, rather than untruths and half-truths. (Macquarie was sued by shareholder Moab alleging that Macquarie didn’t disclose that a new rule would result in the loss of half its business.)

Writing for the court, Justice Sonia Sotomayor declared that “half-truths, not pure omissions” are necessary for shareholders to allege actionable claims under Rule 10b-5. Shareholders can still bring suits for half-truths, and the SEC remains empowered to bring enforcement actions for securities violations.

The case is expected to return to the federal district court for adjudication of Moab’s half-truth claims.

Bloomberg Law subscribers can find related content on our In Focus: Special Purpose Acquisition Companies (SPACs) page, our Equity Deal Analytics page, and on our Securities Practice Center resource.

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