AI enthusiasm sees sleepy IPO market booming – not now

The AI ​​frenzy is in full swing, making Nvidia Corp the world’s first chipmaker and only the sixth US company to hit a $1 trillion market capitalization, following its ambitious earnings forecast based on growing demand for chips to power artificial intelligence applications .

However, according to Ted Smith, co-founder and president of technology-focused investment bank Union Square, Nvidia’s success stands in stark contrast to many growth-stage AI businesses whose financial models are not strong enough for an initial public offering. Consultant.

“Companies in this space are doing really cool, interesting and valuable things, but they still have single digits or low double digits of revenue,” Smith said. He sees AI IPOs as “the event of 2024”.

Meanwhile, investment bankers are seeing a lot of activity in the AI ​​space. The thinking behind the current deals is “which of my portfolio companies can I use to acquire AI assets to turbocharge those portfolio companies, rather than start-to-mid-stage AI companies?” What are interesting to me, which I can independently acquire.” portfolio today,” Smith said.

necessary boost

So far this year, US-listed firms have raised $10 billion through IPOs, according to data compiled by Bloomberg, down 94% from the same period in 2021 and almost half of this point last year. The market for new IPOs has been on the rise since late 2021, with company carveouts and penny stocks accounting for the bulk of this year’s new market entrants.

The outlook for the AI ​​market and how companies can benefit from the technology has evolved rapidly over the past six months. For example, software companies are increasingly integrating AI into their products and services. Salesforce Inc. and Microsoft Corp. Working to integrate generative AI. Meanwhile, Amazon.com Inc. is talking about implementing AI in its advertising, and Alphabet Inc. Thinking about how it can be used in search and productivity tools.

For now, Big Tech is the most aggressive group to get its hands around AI. But analysts say the technology has potential uses in many other industries.

“We are in a phase of extreme innovation where almost every company is trying to understand how generative AI can be helpful and additive to their business model,” said Fred Heimeyer, senior enterprise software analyst at Macquarie.

The landscape will be vastly different in the next six months, Heimeyer said, as companies move quickly to “produce” this technology and turn generative AI experiments into products that are available to users.

Of course, it’s all theory for investors. It will take longer than this to bring AI companies to the stock market. For that, businesses will need a solid position in artificial intelligence, but they will also need real financial and profitability models, said Ann Berry, founder and managing partner of Threadneedle Ventures.

“Any company that’s planning on going public needs to figure out if it has an AI angle,” she said. “Otherwise, the AI ​​exposure may displace some of its value proposition.”

Updated: May 31, 2023, 12:41 AM IST