Market participants are taking stock of the summer issuance period, as preparation accelerates for a new wave of listings in the post-Labor Day window.

The season opened on expectations of an unusually active stretch, helped by the record-sized SpaceX IPO in June.

Issuers were instead presented with a far trickier market.

“The second quarter was an amazing rebound in the IPO space, and then July took so much of the wind out of the sails,” said Matthew Kennedy, markets strategist at Renaissance Capital. A Q1 sell-off, a Q2 rebound, a July pullback and an August recovery showed how volatile the year has been, he said.

The markets have now “generally stabilized,” said Ilir Mujalovic, partner and head of ECM at law firm Cleary Gottlieb. He noted how the first quarter of this year started with a lot of optimism, but it was then negatively affected by the war in Iran, private credit issues, and an AI-driven sell-off in technology companies, so “there was significant volatility.”

SpaceX itself has been on its own rollercoaster. After pricing at USD 135 per share, it opened at USD 150 on 12 June and reached USD 225.64 on 16 June before falling to an all-time low of USD 104.83 on 3 August. It has since recovered to USD 139.05 as of 12 August, days after a lockup expiry that lifted its free float to 11.8% of shares outstanding from 4.9%.

July opened the market’s eyes to the risk of AI concentration and punctured the aura of invulnerability that has powered much of the most recent issuance in the category.

When SK Hynix reported record quarterly profit on 29 July that fell short of analyst estimates, its shares sank as much as 19% in Seoul and dragged the KOSPI index lower. Twenty of the world’s most valuable chip stocks lost a combined USD 1.3tn from the prior Friday’s close; the Philadelphia semiconductor index fell close to 20% over the month.

The sell-off resulted in higher volatility across the world, as well as higher investor scrutiny which extended to other sectors. Late last month, consumer companies like Blackstone-owned Jersey Mike’s and Permira-backed womenswear brand Reformation both scored soft debuts on the counts of high valuation expectations and a nervous buyside amid the broader uncertainty.

AI sobriety

Market breadth had been narrowing for a while, with investor selectivity and sector appetite tightening, said Deloitte’s IPO lead Will Braeutigam. In May, “major sources of capital” had become very focused, and picks-and-shovels plays around AI infrastructure took the spotlight in late Q2, he said.

The news cycle of the recent weeks, with concerns rising around AI capex, has brought along a desire for more diversification, as investors seek to de-risk their bets. Issuance has broadened to sectors including biotech and industrials.

Within this climate of “selective reopening,” as Natalie Hwang of Apeira Capital put it, capital will be concentrating around businesses that combine “strategic importance, durable economics and long-term structural relevance.” Investors are separating companies benefiting from AI from those where AI compresses pricing power or lowers barriers to entry, a distinction that is increasingly company-specific rather than sectoral, she said.

When AI fear especially picks up, early-stage and pre-commercial companies pull back first, leaving more mature and profitable companies in the same sector to come to market instead, said Renaissance Capital’s Kennedy.

“This investment super-cycle remains intact but contains mini-cycles of enthusiasm followed by fresh fears around circular spending, capex losses, competition among data centers and power infrastructure,” he said.

With the prospect of mega-LLM IPOs hitting the market as soon as October, including Anthropic, issuers touting AI ambitions will need to prove their worth granularly.

PwC IPO leader Mike Bellin said growth metrics across companies in this ecosystem, including revenue growth, user growth and users above a given spend threshold, are the metrics public-company investors want disclosed in S-1s, he said.

As long as companies show those metrics, a track record and credible projections, Bellin does not see anything especially detrimental ahead.

Appetite for (measured) risk 

Macro risks on the horizon remain in inflation, rates, debt levels and GDP, which weigh most heavily on companies arriving with high leverage. Many pre-IPO conversations now involve balance sheets carrying more debt than the market may accept, said Bellin, with the choice running between using IPO proceeds to deleverage and running a private capital raise beforehand.

Issuers need to tell the story through levered free cash flow and available cash after debt service, and show that the return on borrowed capital sits above its cost, he said. Leverage can be accretive where there is a track record of using it well, but every buy-side investor will ask about it, particularly where leverage sits above recent comparable IPOs, he said.

Post-IPO performance for most of this year’s class has trended up and to the right despite sector-level volatility, said Bellin, describing the market as more balanced than in prior years. Most issuers came to market with valuations and metrics that supported their story, showed earnings momentum through Q1 and Q2, traded well and were rewarded for a well-run process, he said. He expects that to continue absent macro shocks, while allowing that some companies price more aggressively than they should.

Among the major events on the calendar are the US midterm elections, which are likely to generate a degree of apprehension and could result in disruption in the weeks leading up to it.

Beyond political reasons, companies are already opting for accelerated timeframes.

“Issuers will want to jump at the first chance they get given how volatile the year has been,” said Renaissance Capital’s Kennedy.

Cleary Gottlieb’s Mujalovic noted how the IPO window is “generally open, but not for all industries.”

Some candidates are shifting from planning to go effective in 2027 to asking whether they can go effective in 2026, said PwC’s Bellin, with many set to flip documents public in the coming weeks to price before the end of Q3. Q4 2026 is shaping up to be very active, he said.

Tailored Brands, TDR’s Cumberland Farms, and Blackstone’s Encore are among the candidates already on public file and yet to execute. Switch recently filed confidentially, as well as Westinghouse, Nscale and DayOne Data Centers.

Last year produced a two-week post-Labor Day stretch that ranked as the highest capital markets activity outside 2021 in a decade, said Deloitte’s Braeutigam. “Whether we repeat or beat that this September, there are certainly enough high-profile deals that could do it, but whether they actually come to market, it’s hard to say from where we sit,” he said.