The tech IPO market is back and deal valuations are rising. Don’t get fooled again
Shopper using Instacart
Source: Instacart
As tech startups test the IPO market again, they are pushing up their valuations.
After last week’s successful market debut of chip company Arm, two of the most eagerly anticipated IPOs of former high-flying startups have upped their initial public offering valuations — online grocery firm Instacart and marketing automation company Klaviyo.
But don’t be fooled. In upping IPO ranges, tech stocks are still coming out humbled by the post-2021 IPO market slump. The slate of recent and planned tech initial public offerings will test the market’s appetite for new stocks, and experts say the overall IPO resurgence could be slow — and not without bumps.
Instacart and Klaviyo are both expected to make their debuts on the public market as soon as this week. Arm’s jump of nearly 25% during its first trading day Thursday marked the end of a quiet two years for tech IPOs. But these companies are coming to market in a much different environment than those that went public during the IPO, SPAC and meme stock frenzies of 2020 and 2021. Since then, companies have been contending with record-high inflation, interest rate hikes, concerns for the banking sector, and volatile markets.
The majority (70%) of 73 IPOs year-to-date were trading below their IPO price at the time of Arm’s deal, but most are smaller cap companies, and about half are based outside the U.S.
“We see this as a major turning point,” Matt Kennedy, senior IPO market strategist for Renaissance Capital, said of the first major tech IPOs of the year. “This has been the slowest IPO market in over a decade and we seem to be finally coming out of that.”
Investors are struggling to assess what companies are worth and are waiting for the IPO market to pick back up, said Ray Wang, principal analyst and founder at Silicon Valley-based Constellation Research.
“It’s a valuation game and what we’re all trying to figure out right now is, what are they really worth?” Wang said. Growth expectations are down, the availability of funding for these types of investments is down, and many investors are still sitting on the sidelines, he added.
Debuting in an uncertain market means companies and investors have had to say goodbye to the soaring valuations they saw when the IPO market was buzzing two years ago. But Instacart raised its valuation target on Friday to up to $10 billion from as much as $9.3 billion after Arm’s successful market debut. That is still a steep decline from the grocery company’s $39 billion valuation in 2021, and a 75% hit to be absorbed by venture capital investors. Klaviyo is targeting a valuation of up to $9 billion on a fully diluted basis, just slightly below its $9.5 billion valuation in 2021.
The rising cost of raising capital as a result of the Federal Reserve’s interest rate hikes has weighed on future cash flows of companies and their overall valuations. The state of the global economy and the standstill in the IPO market since 2021 has also put a damper on valuations, Wang said.
The market product Instacart is selling
The good news: valuations look “a lot more reasonable,” Kennedy said, compared to two years ago when investors were basically willing to pay anything. He said investors are more focused on profitability than they were in 2021 and companies are recognizing that. Broadly, the tech pipeline has spent the last two years attempting to improve profitability in order to come to market while maintaining their growth and trying to pitch a reasonable valuation, he added.
Instacart is a prime example of this approach to a successful IPO, looking more like a value stock today than a high-flying, money losing tech startup.
“They really need to show that they have a strong fundamental base,” Kennedy said.
Instacart and Klaviyo have solid growth similar to what investors saw two years ago, and importantly, now these companies are not hemorrhaging cash, he added.
Instacart and Klaviyo’s lower valuations could be indicative of the outlook for other venture capital-backed companies and tech IPOs going forward — even those that are profitable, said Kyle Stanford, lead VC analyst at PitchBook. “There’s going to be a struggle for a lot of tech companies and VC-backed companies to come to the public markets and get a positive valuation jump from the get-go,” he said.
He doesn’t expect these highly anticipated public debuts to translate into an immediate broader resurgence of tech IPOs. The opportunity for tech debuts will likely be slower over the rest of the year than many people want to see, Kennedy said, though it can slowly gain momentum with a more typical IPO market possible by early 2024.
What to know before investing in IPO stocks
IPOs can have very volatile trading in the first weeks or even months after a listing. That may be especially true for some of the current deals since they’re the first major tech IPOs of the year and have a relatively lower proportion of shares being sold relative to market cap than historical averages, Kennedy said.
Arm’s stock price was down roughly 5% on Monday morning after its Friday first-day pop.
“My advice would be don’t feel like you need to chase the crowd,” Kennedy said. “And if you do, at least be aware that that’s what you’re doing and have an exit strategy in mind.”
There tends to be an initial excitement with IPOs during which the price gets bid up before losing momentum. Often it’s better to wait until after the first major pullback, Kennedy said.
While these tech IPOs are growth companies, their recent profitability doesn’t guarantee that they’ll be profitable in the long term. And according to Stanford, if the market doesn’t shift back to putting a premium on growth, they’re going to have a difficult time in the public market.
“These companies are risky, especially in a market where your two-year bond is paying almost 5%,” Stanford said. “It’s still an uncertain market and if inflation were to rise back up or interest rates continue to go back up, these riskier tech stocks are going to take a hit.”
Companies will need to show continued growth, profitability and a decent valuation before we see the IPO market back in full swing, Kennedy said.
Nvidia CEO Jensen Huang speaks to the media at a hotel in Beijing, China July 16, 2025.
Alessandro Diviggiano | Reuters
Nvidia is in talks with the U.S. government about shipping a new, more advanced chip to China, CEO Jensen Huang said on Friday.
Earlier this week, Reuters reported the U.S. tech giant is developing a new artificial intelligence chip for China, dubbed the B30A, that will be more powerful than the H20 — the only semiconductor Nvidia is allowed to sell in the country at present. The U.S. has grown concerned in the past few years that advanced American chips could be used in Chinese military applications.
A journalist asked Huang about the B30A during a trip to Taiwan.
“Offering a new product to China for the data center, AI data centers, the follow on to H20, that’s not our decision to make. It’s up to of course the United States government. And we are in dialogue with them. But it’s too soon to know,” Huang said in response.
Last month, Huang said he hopes that Nvidia can sell more advanced chips in China than the H20 during a visit to the country.
Nvidia’s position in China has become a headache for Huang. The company created a special, less-advanced chip for China called the H20, which this year the U.S. government restricted for export. In July, Nvidia said it had given permission to sell this chip again in China. Later, it was revealed that Nvidia will give 15% of its China chip sales to the U.S. government in exchange for export licenses.
Just as it appeared that Nvidia was back in China, it hit other roadblocks, with Chinese authorities raising concerns this month about potential security vulnerabilities in the company’s chips. Nvidia said its products do not have “kill switches and backdoors” built into them.
Several reports this month have suggested that the Chinese government has urged local companies not to use Nvidia chips.
Huang has argued that Nvidia should be allowed to sell its chips to China, so that the country’s AI is built on American technology and domestic tech giants like Huawei don’t fill the void.
That message appeared to get through to Washington. In July, when the H20 was approved for export again, U.S. Commerce Secretary Howard Lutnick told CNBC that the move was allowed because Nvidia would not be giving over its best technology.
“We don’t sell them our best stuff, not our second best stuff, not even our third best,” Lutnick said.
However, the Financial Times reported on Thursday that these comments were seen as “insulting” by Chinese officials and that local regulators are moving to dissuade domestic firms from buying the H20.
A report by the The Information on Friday said that Nvidia has asked some of its component suppliers to stop production related to the H20 graphics processing units.
The company’s shares were down 1.34% in premarket trading at 5:53 a.m. E.T.
– CNBC’s Dylan Butts contributed to this report.
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Jensen Huang, co-founder and CEO of Nvidia Corp., speaks during a news conference in Taipei on May 21, 2025.
I-hwa Cheng | Afp | Getty Images
Nvidia CEO Jensen Huang on Friday showered praise on Taiwan Semiconductor Manufacturing Co. on a visit to Taiwan, saying that anybody looking to take a stake in the company would be “very smart.”
This comes at a time when the U.S. administration has signaled interest in acquiring stakes in tech companies, especially those in receipt of funding under the U.S. CHIPS Act.
Huang, who said the main purpose of his trip to Taiwan was to thank TSMC for their work on Nvidia’s Rubin, its next-generation AI chip platform, made the remarks in response to a query on Washington looking to take a stake in TSMC.
“Well, first of all, I think TSMC is one of the greatest companies in the history of humanity, and anybody who wants to buy TSMC stock is a very smart person,” he said.
Huang said TSMC was making six new products for Nvidia, including a new central processing unit, a hardware component used for computation, and a new general processing unit, used for advanced computation, especially AI.
Earlier this week, Reuters had reported that U.S. Commerce Secretary Howard Lutnick was looking at equity stakes in exchange for CHIPS Act funding for companies such as Micron, TSMC and Samsung.
The 2022 CHIPS Act, passed with bipartisan support under the Joe Biden administration, has seen grants and loans awarded to chipmakers expanding production in the U.S. as part of efforts by Washington to revitalize U.S. leadership in semiconductor manufacturing. TSMC had been promised $6.6 billion under the act to help build its three cutting-edge chip fabrication plants in Arizona.
Lutnick confirmed in an interview with CNBC on Tuesday that the government was in talks to take a 10% equity stake in troubled semiconductor company Intel, and said the administration might consider stakes in other firms as well.
A report from the Wall Street Journal on Thursday, however, said the government had no plans to seek shares in semiconductor firms that were increasing their U.S. investments, citing a government official. TSMC, in March, announced an expansion of its Investment in the United States to $165 billion.
Separately, Huang said that Nvidia was eager to begin work on “NVIDIA Constellation” — a recently announced new Taiwan office for the company to house its growing Taiwan workforce.
Huang said the company was still working with the local government to resolve some issues to start its construction.
“We have many, many employees here in Taiwan, and we’re growing here in Taiwan because our supply chain is so busy here.”
“We’re working with chip companies, system vendors and system makers all over Taiwan, and everybody is working so hard for us and so we need a lot of engineers to work alongside them,” he added.
Shares in TSMC, the world’s largest contract chip manufacturer, have gained 6.5% so far this year.
Separately, news reports on Friday said Nvidia had asked some of its component suppliers to stop production related to its made-for-China H20 general processing units, after China raised security concerns over the chips.
Last month, Nvidia said it expected to receive an export license for its H20 chips, which had been effectively banned in April. However, Beijing has reportedly placed a freeze on local company’s ability to buy them.
According to Reuters, one of the companies told to pause their work in relation to the H20 chips was Taiwan’s Foxconn — also known as Hon Hai Precision Industry. Foxconn did not respond to an inquiry from CNBC on the matter.
Huang on Friday said that the company had responded to Beijing’s concerns regarding its H20s and was hoping that the issue would be resolved.
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