What the IPO Boom Tells Us

Episode Summary

Executive Summary: Goldman Sachs’ Ben Snyder says the U.S. IPO market is clearly recovering, with deal count and issuance dollars rising sharply, but not yet at euphoric levels seen in 1999 or 2021. He argues the backdrop—strong valuations, healthy macro conditions, and AI-related capital needs—supports more issuance, while corporate demand and buybacks should absorb supply for now. Longer term, supply may become more challenging as lockups expire.

Main Topics: IPO market recovery and scale of activity (Priority: 5/5): IPO issuance has rebounded from years of muted activity, with deal counts roughly doubling year over year and dollar volume approaching record levels. AI as a major issuance driver (Priority: 5/5): While IPOs span healthcare and industrials, AI-related companies and capital needs are the main force behind the surge in dollar issuance. Market conditions and the IPO barometer (Priority: 4/5): Goldman’s IPO barometer suggests the macro backdrop is highly supportive, driven by rates, CEO confidence, and valuations. Is this a bubble signal? (Priority: 4/5): The conversation compares today’s IPO boom with late-1990s and 2021 exuberance, but Snyder argues current activity is still far below those euphoric peaks. Share supply vs. demand in equities (Priority: 5/5): Despite concerns that IPOs and follow-ons could overwhelm markets, Snyder says total issuance remains modest relative to the equity market and buybacks create substantial offsetting demand. Outlook for earnings, volatility, and the equity market (Priority: 4/5): The medium-term bullish case rests on strong earnings growth, though stock-level volatility and dispersion are expected to remain elevated.

Key Arguments: IPO activity is recovering from a four-year slump and is now close to 2021-era dollar issuance. The current IPO wave is driven partly by normal normalization after muted issuance, but also by large companies and AI-fueled capital demand. IPO activity depends on supportive macro conditions; if AI sentiment or broader market conditions deteriorate, the pipeline likely weakens. Today’s market has similarities to prior boom periods—high valuations, strong confidence, technological change—but the deal count is still far below late-1990s and 2021 extremes. Investors’ biggest concern is supply overwhelming the market, but issuance is only about 1% of the equity market and corporate buybacks remain enormous. Longer-term supply may rise as IPO lockups expire and more shares come to market, making 2027 and beyond potentially more challenging. Market gains have been driven mainly by earnings growth rather than valuation expansion, supporting the bullish case despite volatility. Index-level volatility is muted, but individual stock volatility and low correlations are high, especially amid elevated leverage in the market.

Data Points: U.S. IPO count YTD: just shy of 50 deals - Seen roughly halfway through the calendar year; about double the pace of last year IPO count vs. last year: about 2x higher - Current year-to-date U.S. IPO activity compared with the same point last year Highest deal count comparison year: since 2021 - Largest number of U.S. IPOs at this point in the year since the 2021 boom IPO issuance value: about $120 billion - Current issuance is already roughly tied with 2021 on a dollar basis IPO barometer: 140 - Goldman’s macro indicator of IPO friendliness; long-term average is about 100 IPO barometer long-term average: 100 - Benchmark for the IPO-friendly macro environment 25-year average IPO count: about 100 deals per year - Used to show current activity is not extraordinarily euphoric in deal count terms IPO count in 2021: over 250 IPOs - Referenced as a prior euphoric period IPO count in 1999: almost 400 IPOs - Referenced as a late-1990s bubble-like period Forecasted combined issuance: about $700 billion this year - IPOs plus follow-ons expected to reach this level Combined issuance as share of equity market: about 1% - Used to argue supply is not likely to overwhelm the market this year Corporate buybacks: more than $1 trillion this year - Buyback demand expected to exceed supply of newly issued shares S&P 500 year-to-date return: about 10% - Illustrates broad market strength Forward earnings growth: about 17% - Earnings growth outpacing index gains, implying lower valuations Valuation trend: PE multiples lower than start of year - Because earnings have risen faster than prices Potential supply challenge timing: 2027 and beyond - As more IPO shares unlock and float expands

Pivotal Quotes: "If the long-term average of the barometer is about 100, today we're at 140, which is not as high as we got in 2021, but otherwise at the top of the range." — Ben Snyder: Describing Goldman Sachs’ IPO barometer and the strength of the current IPO backdrop "The real concern from investors is: is this indicative of a kind of euphoric environment that marks the peak of bubbles?" — Allison Nathan: Framing the key question about whether rising IPO activity is bullish or a warning sign "Although the dollar of volume is quite elevated, although we're seeing an acceleration in activity, to me, it still looks like we're a far cry from that level of euphoric sentiment that we saw in those episodes." — Ben Snyder: Comparing today’s IPO market with 1999 and 2021

Implications: The IPO rebound looks supportive rather than alarming for now, but investors should watch AI momentum, lockup expirations, and earnings. Near-term supply appears manageable; medium-term volatility and supply pressure may rise.