(Bloomberg) -- For Wall Street’s investment bankers, a deepening tech-stock selloff is threatening to worsen a painful reality: Investors just aren’t clamoring to get in on the industry’s next big IPO.
The slide in the Nasdaq 100 Index began Wednesday, turning into about a 4% retreat. There were already signs that interest in new stock offerings from tech companies was on the wane, however.
Jefferies Financial Group Inc.’s quarterly survey of hedge funds and long-only clients found that less than 20% said the track records of recent tech IPOs were encouraging enough to make them more likely to buy into new ones. That was a steep drop from the previous survey, when 56% said so.
The response reflects the relatively lackluster runs for the handful of tech companies that went public this year, seeking to seize on a rally that was pushing the market to record highs.
Take Waystar Holding Corp. and Rubrik Inc. The companies’ shares have risen roughly 8% and 9% respectively, gains that pale in comparison with the 30% or more increases many investors expect on the first day. They are also well short of the steep jumps seen by many big tech companies in the S&P 500 Index. Some companies have fared worse — Ibotta Inc., a maker of e-commerce software that went public in April, is down 23%.
“Investors are looking for Goldilocks assets that are growing above market,” said Becky Steinthal, head of technology, media and telecommunications equity capital markets at Jefferies.
The diminished appetite for new deals comes as the broader market outlook is clouded by the US presidential election and the timing of the Federal Reserve’s first interest-rate cut, which traders now expect in September.
The latest batch of earnings reports is adding to the uncertainty. Stock prices were dragged down on Wednesday after Tesla Inc.’s earnings disappointed and Alphabet Inc.’s results fanned worries that the surge in spending on artificial intelligence may not deliver the bonanza investors have been betting on.
To be sure, there are outliers among recent tech IPOs. Shares of OneStream Inc., a cloud-based financial platform, jumped 34% in its market debut Wednesday after its IPO priced above range to raise about $490 million. Reddit Inc.’s stock has risen 85% since its first-time share sale in March.
The volume of US tech IPOs amounted to $6.5 billion so far this year, about a third of the total, according to data compiled by Bloomberg. While it was much more robust than the $659 million raised in the same period last year, the pipeline of deals in the coming months is becoming thinner, with expected offerings like StubHub Inc.’s being pushed back.
Subdued Pace
The outlook is likely to keep the pace of tech IPOs subdued. Moreover, many of the large startups that may eventually turn to the stock market to raise cash appear to have no urgent need to do so, either because of prior fundraising or deals that allowed investors to cash out in the private market.
“The only pipeline that feels really strong in tech is the one that begins in the second quarter of 2025,” Steinthal said. “At the end of the day, most of what we are hearing and seeing is a lack of urgency to transact before the middle of next year.”
There continues to be “modest improvement” in the IPO environment, Nasdaq Inc. Chief Executive Officer Adena Friedman said on the exchange operator’s second-quarter earnings call Thursday. A lot of potential IPO candidates, particularly in tech, are geared towards the first half of next year, instead of rushing for the second half this year, she said.
“If there’s some positive momentum in the economy, positive things that are happening as we go through the fall, you could see the door opening up because more and more companies are getting ready to go out,” Friedman said. “But I’d still think a lot of them are thinking that they’ll wait past the year, and go in 2025.”
(Updates with Nasdaq CEO comments from the 13th paragraph.)
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