AI-induced tech selloff spoils the IPO parade

Investors have been thirsting for new issues, and big names including SpaceX, OpenAI and Anthropic are readying debuts for later this year. The momentum created an opening for dozens of smaller, mainly private-equity backed software firms that had been waiting in the wings. Then fears that AI will upend the software industry sent stocks tumbling earlier this month. The selloff accelerated Monday after a viral blog post about the threat posed by AI. Bankers and investors now expect the few mega-offerings to dominate the year. Most private tech companies—many that have spent years biding their time—will be forced to keep waiting it out. The U.S. IPO market, dormant for years, finally started to look up for tech companies last year. Among the early casualties are Blackstone-backed Liftoff Mobile, a marketing platform that pulled its planned offering earlier this month, and the fintech-powered broker Clear Street, which withdrew its IPO plans last week, citing poor market conditions. Three-quarters of tech stocks that debuted last year are now trading below their IPO prices, with the whole class of 2025 tech IPOs down an average of 21% through Monday’s close, according to Dealogic, which analyzed companies that raised at least $50 million in offerings. The three tech companies that went public so far this year are down an average of 36% through Monday’s close. Few companies signify the risk that comes with buying a hot tech IPO more than Figma. The software company debuted in late July, raising about $1.2 billion for the company and investors who cashed out, making it the biggest venture-backed tech IPO since 2021. Figma’s shares soared 250% in a debut so splashy that bankers came under pressure for leaving money on the table by underpricing it. Its success ushered in a wave of tech offerings later in the year, including StubHub, Klarna and Navan. All four companies are now trading at least 25% below their IPO prices. In the case of Figma, hype for the design-software company waned on fears that AI will be able to more easily create apps and webpages. The stock got a small boost when Figma posted better-than-expected revenue growth and addressed its AI strategy in its latest earnings release last week. Fund managers who started the year optimistic for the slate of new companies coming to market now say their appetite for allocating capital to new issues is low. While the S&P 500 is roughly flat so far this year, the swift selloff in tech shares makes modeling future revenues difficult, fund managers say. Others say they would rather scoop up beaten-down shares of already public companies than take risks on newly listed software firms. There remains an appetite for AI-adjacent offerings, such as Cerebras Systems, which designs chips it says can run AI models. Cerebras delayed its IPO last year, but bankers and investors say to watch for it in 2026. Bankers also expect select cryptocurrency companies to fare better than pure tech companies. Some of the few IPO standouts in 2025 were crypto companies such as Circle Internet Group, which closed up about 97% from its IPO price Monday. This year could bring the stock-market debut of crypto exchange Kraken, which was recently valued at $20 billion. Wall Street isn’t overly concerned about a potential dearth of tech IPOs this year. SpaceX is aiming for a June or July offering while OpenAI and Anthropic are considering late 2026 debuts. SpaceX could be the largest IPO of all time and target a valuation of more than $1 trillion. “The giants are going to have incredible demand. Everybody and their parents will want to hold them,” said Matt Witheiler, who specializes in private late-stage growth investing at Wellington Management. “What’s going to happen with software is some companies will be worth zero.” Witheiler said there are still reasons for optimism for smaller tech companies. Not every fund manager will be able to buy shares of the giants when they go public. Small- and midcap-focused managers will be looking for deals, too. “There’s a lot of dollars in strategies that are not megacap strategies,” he said. Write to Corrie Driebusch at corrie.driebusch@wsj.com