Torsten Sløk, chief economist at Apollo Global Management, has been digging into why so many new stocks flop after their market debut. His answer goes back to 2019, when the market regime started shifting.
Sløk noted that since 2019, companies have been valued at what he calls "peak valuations." Interest rates are higher - a situation he describes as a "hostile rate regime." And the bar for success is set by a handful of mega-cap winners that keep pushing the market higher. For a newly public company to beat that benchmark, the market-adjusted benchmark is set against an index carried by those winners.
The pandemic made things worse. During the 2020-2021 boom, zero interest rates and fiscal stimulus inflated valuations for firms eager to go public, according to Sløk. The result was what Sløk calls "low quality, high bar" - marginal companies going public before they were ready, trying to compete against a handful of dominant stocks.
Even a rocket company like SpaceX, with all its hype and a huge IPO, could not escape that gravity. Economist and IPO-market veteran Jay Ritter had predicted SpaceX stock would underperform, and he was right.
"The market regime has changed, and the old playbook for IPOs no longer applies," Sløk said in a recent analysis.
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Now the spotlight is turning to two of the most buzzy names in tech: OpenAI and Anthropic. Both are preparing to go public, and investor excitement is high.
Sløk is not impressed by the hype.
The catch: Those forces might not be going anywhere. Sløk says "each of these forces could persist." He warns that "valuations may re-inflate in the next IPO window, rates look set to stay structurally higher than the 2010s and index returns remain concentrated in a few mega-caps that keep the relative bar high."
In plain English, that means the next wave of IPOs could face the same headwinds that hurt SpaceX.
The broader IPO market has been volatile in recent years. After a record 2021 with over 1,000 U.S. listings, the number of new offerings plunged in 2022 as the Federal Reserve began raising rates. While 2023 and 2024 saw a modest recovery, many newly listed companies still trade below their debut prices, reinforcing Sløk's cautionary view.
None of this means every new stock is a dud. However, data from recent years indicates that shares of recent IPOs often face poor performance in the period after their listing.
The company is one of the most talked-about in the world, and it still got punished.
For investors, the lesson is not to avoid IPOs altogether. It is to understand the backdrop. Since 2019, the market has been a tough place for newly public stocks to prove themselves.
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