To appreciate the moment, it helps to look at history. In the 1990s, the U.S. saw roughly 400–500 new IPOs per year during the dot-com boom. More recently the market has cooled, averaging fewer than 300 per year over the last two decades. Private funding has become abundant, leaving fewer companies available in the public markets. Private equity has grown in size and become an exit option for many well-established businesses that would have otherwise gone public while venture capital has kept the most promising startups private for longer. The average age of a company at IPO has risen to 14 years, up from less than 10 over the prior decade.

These mega-IPOs look to upend a bit of the status quo. Over the last four years, total IPO proceeds averaged $38.7 billion annually. SpaceX raised $86 billion on its own. With Anthropic and OpenAI behind it, IPO funding levels could approach all-time highs.

While public offerings create a lot of buzz, there are a few things worth keeping in mind, and they are not all obvious.

Volatility comes with the territory. SpaceX sold only about 4% of its shares in the offering; the rest remains in the hands of early investors, management, and employees. Those shares are “locked up,” meaning they cannot be immediately traded. A low-float stock (a stock with a small percentage of outstanding shares available to openly trade) can see elevated volatility due to simple supply-and-demand dynamics. It can be hard to buy, and just as hard to sell, without substantially moving the price.

The lockup expiration is a date worth watching. Typically set six months after an IPO, the lockup expiration is when insiders and early investors are first permitted to sell. SpaceX is a bit unique as it has a tiered release schedule between now and the full lockup expiration in late 2026. Companies with large unrealized gains in their stock can see meaningful selling pressure when that date arrives. It doesn’t always result in a price decline, but it is a known variable that active investors monitor closely.

Index weight is not what the headlines suggest. Most broad indexes weight companies by their float-adjusted market cap, not their headline valuation. Despite ranking among the largest companies in the world, SpaceX’s initial index weight is modest. FTSE Russell, for example, expects it to represent roughly 0.1% of its flagship Russell 3000 Index. The index story is also more nuanced than the headlines convey: while Nasdaq and Russell changed their rules to include mega-cap IPOs within days of listing, S&P Dow Jones declined, meaning SpaceX will not be eligible for S&P 500 inclusion for at least another year. Two investors who both describe themselves as “index investors” may end up with very different SpaceX exposure depending on which benchmark they track.

As part of our ongoing research process, we continually monitor the market for new opportunities: mergers, spin-offs, management changes, and IPOs alike. We look for underfollowed and underappreciated situations where the market hasn’t yet given a company credit for what we believe it can become.

One of our newest holdings is a recent IPO: Forgent Power Solutions (FPS). The company sells electrical distribution equipment into data center, grid, and industrial end markets. We saw an opportunity in a business that we believed the market was undervaluing relative to its growth trajectory. It is exactly the kind of situation that a more active IPO calendar surfaces and a reminder that while the mega-IPOs get the headlines, interesting investment opportunities are often found further down the list.

As with all investments, we evaluate IPOs the same way we evaluate everything else: growth opportunities, profitability, cash flow, balance sheet strength, and valuation. The headlines are interesting but the business underneath them is what matters.

After a few quiet years, we welcome a more lively IPO market. For us, that simply means more to evaluate, and occasionally, something worth owning.

Best Regards,
The Sandhill Research Team

Disclaimer: This commentary is for informational purposes only and does not provide specific investment advice, recommendations, or offers to buy or sell any securities. Sandhill Investment Management (“Sandhill”) is a registered investment adviser with the Securities and Exchange Commission. Statements reflect Sandhill’s views as of the commentary date and are subject to change. Past performance is not indicative of future results, and all investments involve risks, including the potential loss of principal. References to specific securities are for illustrative purposes only and do not constitute recommendations or guarantees of future performance. Economic and market discussions are based on publicly available information believed to be reliable, but Sandhill does not guarantee its accuracy or completeness. Investors should evaluate risks, including market volatility, geopolitical uncertainty, and company-specific factors, before making any investment decisions. Consult your financial, legal, or tax advisor to ensure any investment strategy aligns with your goals and risk tolerance.