After the successful listings of Reddit [NYSE:RDDT] and Astera Labs [NASDAQ:ALABS], more and more prospective public market candidates are highlighting their business links to artificial intelligence in investor meetings.

The initial public offering of the social media platform Reddit was boosted by a deal agreed with Alphabet [NASDAQ:GOOG] for the search giant to use its content for training AI models.

One ECM banker joked that he could not think of any upcoming IPO prospectus that doesn’t include at least one mention of AI. And another banker concurred: “There will be some natural tendency to highlight AI as a growth lever.”

On 18 April, Walmart-backed digital marketing firm Ibotta’s shares soared 33% on its debut on the New York Stock Exchange, with a market valuation of USD 3.55bn.

A Silicon Valley venture capitalist said that AI was a key component to its success, as it uses an AI engine to connect brands and promotional campaigns with customers in its network. He noted AI is heavily integrated into its business and is driving strong top-line growth.

This, he added, is a sign that some IPO-bound companies, whether they are just starting out or already established, need to have an AI strategy and that this strategy needs to drive business.

“The AI theme will dominate the IPOs coming to market over the next few years,” he said.

The market enthusiasm around stocks like Nvidia [NASDAQ:NVDA], Microsoft [NASDAQ:MSFT] and Meta Platforms [NASDAQ:META], the three best-performing “Magnificent Seven” stocks over the past 12 months, also underlines the explosive growth of the AI market.

Meta is reportedly about to incorporate new versions of its AI-powered smart assistant software across Instagram, WhatsApp, Messenger and Facebook. In addition, Microsoft has invested USD 13bn in OpenAI and Amazon [NASDAQ:AMZN] USD 4bn in Anthropic.

The sector remains nascent, though. According to Dealogic, Americas AI-related IPO issuance only broke USD 1bn in 2020; so far this year though there has been USD 825.67m worth of issuance, setting up 2024 to perhaps be a record breaker for the sector.

In EMEA, volumes are almost halfway to the billion mark.

Piper Sandler co-head of technology investment Brian White said that, although AI is hot, investors are becoming more and more discerning about the technology’s capabilities and specific and tangible use cases.

How to value these businesses remains an open question, according to J. Neely, senior managing director and global M&A lead at Accenture Strategy.

“It is about trying to understand this new technology in each new case,” he said. “There are companies that see this technology as a core part of their business model and others that have embedded capabilities in their existing offerings.”

A growing market

The IPO pipeline includes Cerebras Systems, a manufacturer of AI chips, which hopes to fetch a valuation exceeding USD 4bn with a 2H24 listing.

Shield AI, which develops unmanned military aircraft technologies, wants to be ready for an IPO in 2026, cofounder and CEO Ryan Tseng recently told this news service.

Meanwhile, Hayden AI Technologies, a provider of traffic optimization solutions, will consider raising another round of capital to accelerate growth ahead of a possible IPO that could be launched as soon as next year, according to CEO Chris Carson.

Other companies should be monitored for future public market debuts.

Cohere, which is positioning itself as an OpenAI’s ChatGPT rival, is reportedly in advanced discussions to obtain USD 500m in a funding round that values the Toronto-based AI startup at USD 5bn.

Last September, AI research company Imbue, formerly known as Generally Intelligent, raised USD 200m in a Series B funding round that valued the company at over USD 1bn; participants in the round included Astera Institute, NVIDIA, Cruise CEO Kyle Vogt, and other investors.

But the industry remains largely untested, said Daniel Klausner, a managing director in Houlihan Lokey’s capital markets team.

“Because there are so few public companies around the “pure AI space”, it’s hard to know what’s working with a handful of public companies,” he said.

Despite AI being a hot sector, nobody wants to get burnt.