What to Make of a Hot IPO Market

3D rendering of "IPO" written in blue with a white square around it and a white moving average with blue circles underneath it

With stock markets hitting highs and a flood of new companies selling their shares to investors, it's easy to get FOMOIPO — fear of missing out on initial public offerings. But the fortunes of many of the debuts in this year's surge are tied to artificial intelligence (AI) or cryptocurrency, making the batch of new issues perhaps even riskier than the typical crop.

Through September 30, there were 161 U.S. IPOs, according to IPO research firm Renaissance Capital, compared with 150 for the entirety of 2024. Renaissance counted 64 IPOs in the third quarter, raising a combined $15.3 billion—the biggest quarter for new issuance since 2021.

One of 2025's top-performing IPOs has been CoreWeave (CRWV), which operates a cloud platform for artificial intelligence computing. Priced at $40 per share at its March IPO, it closed out September at $137, giving it a market capitalization of $71 billion. Circle Internet Group (CRCL), a trading platform for bitcoin and an issuer of a stablecoin (a type of cryptocurrency pegged to the U.S. dollar), was priced at $31 in June and is now $133, giving it a market value of $30 billion.

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Both are unprofitable, according to S&P Global Market Intelligence. (Prices, returns and other data are as of September 30, unless otherwise noted.)

"The IPO market tends to be a lot busier in periods when asset prices may be somewhat inflated, toward the top of a market cycle," says Nick Einhorn, the director of research at Renaissance. The "danger," he says, is that when the cycle turns, IPO stocks can fall sharply.

IPOs have always been risky because the companies are typically younger or less established than those already trading on the stock exchange, and IPOs don't have a track record of delivering results to a broad shareholder base.

A go-to exit strategy

IPOs originated hundreds of years ago as a way for companies to raise capital to expand their business — especially needed in an industrial economy that required property, manufacturing plants and equipment.

The market has evolved over time, particularly in the final decades of the 20th century, when the U.S. economy shifted and became dominated by technology companies. Today, raising capital is sometimes secondary to giving early owners a way to exit their investments profitably or providing a way for employees compensated with stock to easily know what their shares are worth.

For many companies, a big part of the IPO story is the buildup to its first day of trading with individual investors — and whether the shares will "pop," producing a big return. Einhorn says the average first-day return for IPOs of $100 million or larger so far in 2025 has been 27%, compared with 16% in 2024.

In this froth and frenzy, opportunities mix with peril. The safest course may be to wait for companies to settle in some months after their debut, after one or two quarterly earnings reports.

Investors should also know when a company's "lock-up period" ends. This is a window, typically 90 to 180 days from the IPO, when company insiders cannot sell their stock. IPO investors can typically expect some selling pressure when it expires.

Jay Ritter, a University of Florida finance professor with a longtime specialty in IPOs, says his work suggests investors look to more mature companies, which he defines as having at least $100 million in revenue when they come public.

According to S&P Global Market Intelligence, 42 of the companies with IPOs this year make the cut, including curriculum provider McGraw Hill (MH) and online ticket reseller StubHub Holdings (STUB). Ritter says he has found "a pretty strong pattern" that the mature companies, on average, do as well as the broader market, while less-mature companies "all too often struggle."

Investors interested in IPO stocks should consider valuation measures — particularly price-to-sales ratios, for unprofitable companies — and generally use all the typical methods they use to pick investments, says Ritter. "Don't think of it as an IPO or recent IPO, think of it as a stock, whether it has been traded for three months or 30 years."

Consider the old guard

Not all of 2025's biggest IPOs fall into edgy, trendy categories, and a couple of newbies that might be worth exploring, analysts say, are a little more old school.

Venture Global (VG) pursued an IPO because it needed capital to continue an ambitious plan, launched in 2022, to produce, refine and sell liquefied natural gas from the U.S. Gulf Coast. The company has chosen so far to sell at market prices rather than use long-term contracts for revenue certainty. With $31 billion in debt, it has little margin for error.

That risk may be priced in, however, because the shares, which went public in January at $24, are now at $14, trading for less than 10 times estimated earnings for the next 12 months. Analyst Manav Gupta, of investment firm UBS, in August boosted his rating on the energy stock from Neutral to Buy, with a 12-month price target for the shares of $18.

Pork producer Smithfield Foods (SFD) was a public company until its Chinese parent, WH Group, took it private in 2013. WH Group decided to bring it back to public markets in January by selling 13% of the company at $20 a share. Analysts expect earnings per share of $2.35 in 2025 and $2.39 in 2026, up from $1.88 in 2024. The stock's price-to-earnings (P/E) ratio is under 10.

Six of the seven analysts who cover the consumer staples stock have a Buy rating, with an average 12-month target price that suggests a 25% gain from its recent close.

If getting in on the ground floor of brand-new companies is something you want to gamble on, limit your investment to no more than you can lose. You can diversify the risk by choosing an exchange-traded fund, but be forewarned that the ride can be bumpy.

Renaissance Capital's Renaissance IPO (IPO) adds new IPO stocks once per quarter, removing any that have traded for more than three years. The average age of the 31 stocks in the fund is 1.3 years, and it has less than 1% overlap with the S&P 500.

In 2025, it's up 14.5%, roughly even with the 14.8% gain for the S&P benchmark index and ahead of the 10.4% return for the Russell 2000, a popular small-stock index. In the past 10 years, the ETF has been in the top 5% of its category (mid-cap growth funds) three times, but in the bottom 10% five times. On the plus side, its expense ratio of 0.60% puts it among the cheapest 20% of funds in the category.

The First Trust US Equity Opportunities ETF (FPX) is a bit less volatile and has a similar expense ratio, at 0.61%. The fund seeks to replicate the IPOX-100 U.S. index of large, liquid IPOs, which IPOX says captures about 85% of the total market capitalization of IPOs in the previous four years. The ETF is up 39.3% so far in 2025.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

David Milstead joined Kiplinger Personal Finance as senior associate editor in May 2025 after 15 years writing for Canada's Globe and Mail. He's been a business journalist since 1994 and previously worked at the Rocky Mountain News in Denver, the Wall Street Journal, and at publications in Ohio and his native South Carolina. He's a graduate of Oberlin College.