IPO market faces renewed uncertainty

The US IPO market started 2025 with a mix of optimism and caution. While the first few weeks of the year saw a solid pace of IPO activity, various factors such as persistent inflation concerns, evolving AI market dynamics and shifting government policies have created an environment of heightened uncertainty. This has led many companies in the IPO pipeline to consider waiting for more stable market conditions.

While IPO activity has thus far surpassed 2024 levels and has far outperformed the lows of 2022 and 2023, many challenges remain. For a meaningful rebound in the remainder of 2025, two key factors likely need to align:

• Greater clarity on Fed policy: With three to five rate cuts for 2025 now priced into the market, IPO issuers are seeking evidence of this interest rate moderation for the remainder of the year.
• Resolution of policy uncertainties: Understanding the impacts of the administration’s stances on tariffs, immigration and regulatory changes will be important for market confidence.

For now, companies considering an IPO should prioritize readiness, making sure they meet key investor criteria—strong scale, growth, profitability (or a clear path to profitability) and a well-established operational structure. The IPO window can open and close quickly, making preparation essential to creating “option value” for potential issuers.

IPO market performance and outlook

In the first quarter of 2025, there have been 15 traditional IPOs raising over $7.9 billion, making this the strongest start to the year since 2021. While this volume is 20% higher than the first quarter of 2024 and more than quadruple the proceeds of the first quarters of 2023 and 2022 respectively, IPO market activity began to taper mid quarter, and recently has come to a complete halt due to the recent market selloff.

There have been some earlier caution flags this year, highlighting the somewhat tenuous nature of the first quarter's IPO environment. The largest IPO of the year so far has been a liquefied natural gas (LNG) export company, which raised $1.8 billion. However, the company also had to slash its valuation before pricing.

For now, SPAC IPO activity continues to remain relatively robust, with this year seeing the strongest start since 2022, with 20 SPACs raising over $3 billion, as noted by Dealogic. In comparison, the first quarter of 2024 saw 6 SPAC IPOs raising $614 million, while the first quarter of 2023 had 11 SPAC IPOs raising $797 million. SPAC merger activity remains muted, however, with only 10 de-SPACs so far in 2025, compared to 28 in the first quarter of 2024 and 30 in the first quarter of 2023 highlighting the increased execution risks with SPAC mergers.

The Federal Reserve’s evolving stance

After cutting rates by 100 basis points in 2024, the Fed adopted a wait-and-see approach. Initially, following stronger than expected inflation data, markets anticipated only one to two rate cuts this year. However now, the market is pricing in around three to five rate cuts this year.

The ten-year treasury yield initially surged after the Fed’s rate cuts last year but has since declined recently as fears of economic weakness mount. For IPOs, lower rates are generally positive, but if cuts are driven by economic weakness, investor confidence may be affected.

GDP estimates from the Atlanta Fed have been revised downward into negative territory, reinforcing concerns of a slowdown. While PwC expects real GDP growth to slow to 1.9% in 2025 from 2.8% in 2024, the economy’s future direction and pace of growth will depend on shifting policy priorities, how businesses position themselves and how financial markets respond.

Policies of the new administration on IPOs: deregulation vs. uncertainty

Following President Trump’s election, markets initially rallied on expectations of tax cuts and deregulation. However, subsequent policy actions—such as substantial tariffs on Chinese, Mexican and Canadian imports, stricter immigration measures, and federal job cuts— introduced uncertainty, prompting some businesses to delay investments. On President Trump’s first day in office, he issued the America First Trade Policy, which launched an investigation into unfair trade practices to conclude on April 1. A key component of this investigation, "Unfair and Unbalanced Trade," targeted countries with significant annual trade deficits in goods, subjecting them to country-specific tariffs. Additionally, on February 13, President Trump introduced the Fair and Reciprocal Plan, designed to evaluate and impose reciprocal tariffs on countries that enforce higher duties/tariffs on US goods, including through a value-added tax or other non-tariff barriers. These investigations led to President Trump's April 2 announcements of a 10% universal import duty on almost all goods brought into the U.S., as well as reciprocal tariffs on imports from over 60 nations. Rising wages and inflationary pressures further complicate the Federal Reserve’s outlook, making capital markets more unpredictable. These factors create an environment where equity investors are less willing to take risk, despite the potentially positive regulatory impact initially expected.

Over the past two decades, the number of IPOs has declined sharply, in part due to increasing regulatory burdens and a rise in private market alternatives. One potential boost for the IPO market could come from easing compliance requirements for newly public companies. The JOBS Act introduced the concept of Emerging Growth Companies (EGCs), providing a phased approach to disclosure obligations. However, recent SEC rule changes have not extended meaningful relief, so the commission is now reviewing the EGC definition, considering adjustments to eligibility criteria and duration of EGC status to make IPOs more attractive.

To revitalize IPO activity, a two-pronged approach may be necessary: regulatory reforms that lower the compliance burden for newly public companies and a stable policy environment that supports long-term capital formation. While a more deregulatory stance could encourage more companies to go public by lowering compliance costs, sustained policy uncertainty may continue to deter new listings. Ultimately, the trajectory of the IPO market will depend on how the administration balances pro-growth initiatives with broader economic stability.

The AI trade: from tailwind to headwind?

The AI-driven rally that fueled 2024 markets is now under pressure. The “Magnificent Seven” tech stocks that led last year's gains are showing mixed performance, with the industry leading AI chipmaker facing volatility after earnings failed to exceed sky-high expectations.

Investor sentiment weakened further with the emergence of a Chinese AI model reportedly built at a fraction of the cost of its US counterparts, raising concerns about overinvestment in AI infrastructure. Comments from a leading hyperscaler’s CEO about potential overcapacity in AI infrastructure have added to the market’s caution.

Despite these concerns, AI remains a key IPO theme. More recently, a highly anticipated AI infrastructure provider launched its IPO and had to reduce its offering size and pricing range significantly as well as rely on an additional investment from a strategic cornerstone investor in order to complete the transaction (which still opened below its reduced pricing range).

While the initial hype cycle around AI helped fuel record private valuations, the public markets are demanding clearer visibility into profitability and capital efficiency. As more AI-native companies approach the public markets, their performance will help define whether AI remains a durable equity story or transitions into a more selective, fundamentals-driven trade.

As markets evolve, having the right advisory team is more critical than ever. Our specialists can guide you through every stage of IPO preparation and execution, helping you navigate today’s uncertainties with confidence.

^{Note: IPOs with deal values of less than $25 million, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded from this narrative. Data from SEC filings and third-party databases are as of March 31, 2025.}