• Issuers must reassess business models and projections
• Disruption may delay AI-related listings until 3Q or later

Shockwaves from China’s low-cost artificial intelligence breakthrough will continue to ripple across the stock market and, at least temporarily, derail a few initial public offerings, industry experts said.

Prospective issuers with offerings tied to artificial intelligence will need to reassess how Chinese low-cost models, like the one that DeepSeek stunned the world with, may weaken or strengthen their businesses, according to the sources.

Cloud-computing platform CoreWeave, for example, will struggle to list its shares at the USD 35bn valuation it reportedly desires, said Phil Haslett, co-founder of EquityZen, which operates a secondary marketplace for pre-IPO companies to create liquidity for employees and investors.

“Anybody that’s levered to AI infrastructure has to really rethink their storytelling here,” he said.

Even though CoreWeave has not publicly filed for an IPO, Goldman Sachs, Morgan Stanley, and JP Morgan are reportedly preparing the company for a public listing as soon as the second quarter.

It will take months to fully understand DeepSeek’s impact on the technology sector, which could push AI-related IPOs into 3Q or later, one equity capital markets attorney noted. CoreWeave might be able to list later in the year with reassurances to its investor base about the viability of their projections, he said.

Sources said it will be compared to chipmaker Nvidia [NASDAQ:NVDA], a CoreWeave partner and investor, which saw nearly USD 600bn of its value vaporize in Monday’s market selloff, the largest single-day dollar loss for any company in history. Other comps include Nebius Group [NASDAQ:NBIS], which saw its market capitalization immediately drop by 37%, and DigitalOcean [NYSE:DOCN], which fared far better with shares trading slightly up this week.

Another IPO hopeful selling AI infrastructure is Cerebras Systems, which filed an S-1 last fall with Citigroup and Barclays advising. The listing was already delayed by a US national security review of UAE-based G42‘s minority investment in the AI chipmaker, which valued it at USD 4bn in 2021. The company is said to want to double that valuation in an IPO this year.

“This puts even more question marks on its timeframe,” the attorney said.

Heightened investor scrutiny is in store for equity issuers, which will need to recalibrate their stories to address whether cheaper Chinese models pose a threat or cost-savings benefit, he and the sources said.

While low-cost, open-sourced AI offerings put pressure on semiconductor companies that may not be able to sell as many AI chips as initially forecast, they also may usher in the commoditization of the model layer where rapidly growing startups such as Anthropic and OpenAI have flourished.

Listing outlook unclear

“What we’re seeing is a classic Gartner hype cycle in play,” Brown Gibbons Lang ECM Managing Director David Koch said. “The AI sector has been riding towards the peak of inflated expectations, and DeepSeek is the reality check.”

Capital deployment in the sector will come under more scrutiny, as investors realize that much more development is required before the industry’s “productivity plateau” is achieved, Koch said. IPOs, along with private and public capital raises for AI labs will continue, but valuations will be under more pressure, he continued.

A potentially bigger problem for the IPO market right now may not be related to AI at all. The poor aftermarket performance of this week’s liquefied natural gas exporter Venture Global [NYSE:VG] and pork producer Smithfield Foods’ [NYSE:SFD] listings have left some IPO investors feeling short changed, Koch noted.

Since only a small portion of the current crop of near-term IPO candidates are AI companies, DeepSeek’s impact on new issuance may be lessened, a few of the sources said.

The release of DeepSeek doesn’t fundamentally change a key issue for many near-term tech IPO candidates, namely how does AI impact their product and end market, said Carl Chiou, a managing director and partner at William Blair.

For AI-first companies, it’s too early to assess the implications of DeepSeek given skepticism about how the model was built so quickly and cheaply, but investors are trying to understand the impact of potentially reduced AI infrastructure spend and greater accessibility of AI, he said.

For some financial technology providers, less expensive open-sourced AI models could be a boon for business, added Goodwin Co-Chair of Global M&A Lawrence Chu.

Swedish payments firm Klarna made meaningful financial and operational improvements by leveraging AI, for example. Now Klarna and other fintechs have access to more models that enable them to replace traditional software tools with AI.

Klarna confidentially filed for an IPO in the US in November.

Still, AI providers and their customers will have to weigh the merits of open-sourced models like that of DeepSeek and Meta’s [NASDAQ:META] Llama against proprietary models from Anthropic and OpenAI, according to Chu. Some of these companies may pursue a hybrid of open-sourced and proprietary offerings, he explained.

Whether any of this changes how much hyperscalers spend on AI will be a main consideration for tech infrastructure providers planning IPOs, said Mark Klein, CEO of SuRo Capital [NASDAQ:SSSS], which invests in high-growth, venture-backed startups such as CoreWeave, its largest holding.

“If Meta, Microsoft [NASDAQ:MSFT], and Alphabet [NASDAQ:GOOG] are still all in on AI spend, then I don’t think it’ll change the timeline for CoreWeave at all. If it’s hedged or people have some concern, then it’ll be their bankers’ call on when they think it’s appropriate for CoreWeave to list,” he said.

While more time is needed to answer the many questions DeepSeek’s achievements have raised, Haslett points out this “paradigm shift” in AI came at an inopportune time for IPOs. An ideal scenario began unfolding after the presidential election with the incoming business-friendly administration, optimism that wars would end, and the promise of a new year, he said.

“Everything was pretty close to perfect and then China put a fly in the punchbowl,” said Haslett.