The tech IPO market collapsed in 2022, and next year doesn’t look much better
The Nasdaq MarketSite in New York.
Michael Nagle | Bloomberg | Getty Images
Following a record-smashing tech IPO year in 2021 that featured the debuts of electric car maker Rivian, restaurant software company Toast, cloud software vendors GitLab and HashiCorp and stock-trading app Robinhood, 2022 has been a complete dud.
The only notable tech offering in the U.S. this year was Intel’s spinoff of Mobileye, a 23-year-old company that makes technology for self-driving cars and was publicly traded until its acquisition in 2017. Mobileye raised just under $1 billion, and no other U.S. tech IPO pulled in even $100 million, according to FactSet.
In 2021, by contrast, there were at least 10 tech IPOs in the U.S. that raised $1 billion or more, and that doesn’t account for the direct listings of Roblox, Coinbase and Squarespace, which were so well-capitalized they didn’t need to bring in outside cash.
The narrative completely flipped when the calendar turned, with investors bailing on risk and the promise of future growth, in favor of profitable businesses with balance sheets deemed strong enough to weather an economic downturn and sustained higher interest rates. Pre-IPO companies altered their plans after seeing their public market peers plunge by 50%, 60%, and in some cases, more than 90% from last year’s highs.
In total, IPO deal proceeds plummeted 94% in 2022 — from $155.8 billion to $8.6 billion — according to Ernst & Young’s IPO report published in mid-December. As of the report’s publication date, the fourth quarter was on pace to be the weakest of the year.
With the Nasdaq Composite headed for its steepest annual slump since 2008 and its first back-to-back years underperforming the S&P 500 since 2006-2007, tech investors are looking for signs of a bottom.
But David Trainer, CEO of stock research firm New Constructs, says investors first need to get a grip on reality and get back to valuing emerging tech companies based on fundamentals and not far-out promises.
As tech IPOs were flying in 2020 and 2021, Trainer was waving the warning flag, putting out detailed reports on software, e-commerce and tech-adjacent companies that were taking their sky-high private market valuations to the public markets. Trainer’s calls appeared comically bearish when the market was soaring, but many of his picks look prescient today, with Robinhood, Rivian and Sweetgreen each down at least 85% from their highs last year.
“Until we see a persistent return to intelligent capital allocation as the primary driver of investment decisions, I think the IPO market will struggle,” Trainer said in an email. “Once investors focus on fundamentals again, I think the markets can get back to doing what they are supposed to do: support intelligent allocation of capital.”
Lynn Martin, president of the New York Stock Exchange, told CNBC’s “Squawk on the Street” last week that she’s “optimistic about 2023” because the “backlog has never been stronger,” and that activity will pick up once volatility in the market starts to dissipate.
Hangover from last year’s ‘binge drinking’
For companies in the pipeline, the problem isn’t as simple as overcoming a bear market and volatility. They also have to acknowledge that the valuations they achieved from private investors don’t reflect the change in public market sentiment.
Companies that were funded over the past few years did so at the tail end of an extended bull run, during which interest rates were at historic lows and tech was driving major changes in the economy. Facebook’s mega IPO in 2012 and the millionaires minted by the likes of Uber, Airbnb, Twilio and Snowflake recycled money back into the tech ecosystem.
Venture capital firms, meanwhile, raised ever larger funds, competing with a new crop of hedge funds and private equity firms that were pumping so much money into tech that many companies were opting to stay private for longer than they otherwise would.
Money was plentiful. Financial discipline was not.
In 2021, VC firms raised $131 billion, topping $100 billion for the first time and marking a second straight year over $80 billion, according to the National Venture Capital Association. The average post-money valuation for VC deals across all stages rose to $360 million in 2021 from about $200 million the prior year, the NVCA said.
Those valuations are in the rearview mirror, and any companies who raised during that period will have to face up to reality before they go public.
Some high-valued late-stage startups have already taken their lumps, though they may not be dramatic enough.
Stripe cut its internal valuation by 28% in July, from $95 billion to $74 billion, the Wall Street Journal reported, citing people familiar with the matter. Checkout.com slashed its valuation this month to $11 billion from $40 billion, according to the Financial Times. Instacart has taken a hit three times, reducing its valuation from $39 billion to $24 billion in May, then to $15 billion in July, and finally to $13 billion in October, according to The Information.
Klarna, a provider of buy now, pay later technology, suffered perhaps the steepest drop in value among big-name startups. The Stockholm-based company raised financing at a $6.7 billion valuation this year, an 85% discount to its prior valuation of $46 billion.
“There was a hangover from all the binge drinking in 2021,” said Don Butler, managing director at Thomvest Ventures.
Butler doesn’t expect the IPO market to get appreciably better in 2023. Ongoing rate hikes by the Federal Reserve are looking more likely to tip the economy into recession, and there are no signs yet that investors are excited to take on risk.
“What I’m seeing is that companies are looking at weakening b-to-b demand and consumer demand,” Butler said. “That’s going to make for a difficult ’23 as well.”
Butler also thinks that Silicon Valley has to adapt to a shift away from the growth-first mindset before the IPO market picks up again. That not only means getting more efficient with capital, showing a near-term path to profitability, and reining in hiring expectations, but also requires making structural changes to the way organizations run.
For example, startups have poured money into human resources in recent years to handle the influx in people and the aggressive recruiting across the industry. There’s far less need for those jobs during a hiring freeze, and in a market that’s seen 150,000 job cuts in 2022, according to tracking website Layoffs.fyi.
Butler said he expects this “cultural reset” to take a couple more quarters and said, “that makes me remain pessimistic on the IPO market.”
Cash is king
One high-priced private company that has maintained its valuation is Databricks, whose software helps customers store and clean up data so employees can analyze and use it.
Databricks raised $1.6 billion at a $38 billion valuation in August of 2021, near the market’s peak. As of mid-2021, the company was on pace to generate $1 billion in annual revenue, growing 75% year over year. It was on everybody’s list for top IPO candidates coming into the year.
Databricks CEO Ali Ghodsi isn’t talking about an IPO now, but at least he’s not expressing concerns about his company’s capital position. In fact, he says being private today plays to his advantage.
“If you’re public, the only thing that matters is cash flow right now and what are you doing every day to increase your cash flow,” Ghodsi told CNBC. “I think it’s short-sighted, but I understand that’s what markets demand right now. We’re not public, so we don’t have to live by that.”
Ghodsi said Databricks has “a lot of cash,” and even in a “sky is falling” scenario like the dot-com crash of 2000, the company “would be fully financed in a very healthy way without having to raise any money.”
Snowflake shares in 2022
CNBC
Databricks has avoided layoffs and Ghodsi said the company plans to continue to hire to take advantage of readily available talent.
“We’re in a unique position, because we’re extremely well-capitalized and we’re private,” Ghodsi said. “We’re going to take an asymmetric strategy with respect to investments.”
That approach may make Databricks an attractive IPO candidate at some point in the future, but the valuation question remains a lingering concern.
Snowflake, the closest public market comparison to Databricks, has lost almost two-thirds of its value since peaking in November 2021. Snowflake’s IPO in 2020 was the largest ever in the U.S. for a software company, raising almost $3.9 billion.
Snowflake’s growth has remained robust. Revenue in the latest quarter soared 67%, beating estimates. Adjusted profit was also better than expectations, and the company said it generated $65 million in free cash flow in the quarter.
Still, the stock is down almost 20% in the fourth quarter.
“The sentiment in the market is a little stressed out,” Snowflake CEO Frank Slootman told CNBC’s Jim Cramer after the earnings report on Nov. 30. “People react very strongly. That’s understood, but we live in the real world, and we just go one day at a time, one quarter at a time.”
— CNBC’s Jordan Novet contributed to this report.
The Applied Materials logo on Dec. 17, 2024.
Nurphoto | Nurphoto | Getty Images
Applied Materials shares sank more than 10% in extended trading Thursday as the semiconductor equipment company provided outlook for the current quarter that came in light.
Here’s how Applied Materials did in its third-quarter earnings results versus LSEG consensus estimates:
- EPS: $2.48, adjusted, versus $2.36 estimated.
- Revenue: $7.3 billion vs $7.22 billion estimated.
Applied Materials said it expects $2.11 per share in adjusted earnings in the current quarter, lower than LSEG estimates of $2.39 per share. The company said to expect $6.7 billion in revenue, versus $7.34 billion estimated.
CEO Gary Dickerson said that the current macroeconomic and policy environment is “creating increased uncertainty and lower visibility.” He said the company’s China business is particularly effected by the uncertainty.
The Trump administration’s tariffs could double the price of imported chips unless companies buying them commit to building in the U.S. Applied Materials makes tools for chip foundries to physically make chips, much of which currently happens in Asia.
Applied Materials said that it has a large backlog of pending export license applications with the U.S. government, but that it’s assuming none of them will be issued in the next quarter.
“We are expecting a decline in revenue in the fourth quarter driven by both digestion of capacity in China and non-linear demand from leading-edge customers given market concentration and fab timing,” the company’s finance chief said in a statement. He added that it expected lower China business to continue for several more quarters.
Applied Materials reported $1.78 billion in net income, or $2.22 per diluted share in the quarter, versus $1.71 billion or $2.05 in the year-ago period.
The company’s most important division, semiconductor systems, reported $5.43 billion in sales, topping estimates, and representing a 10% rise from last year.
Applied Materials was praised by President Donald Trump earlier this month after it was included in an Apple program to make more chips in the U.S.
Apple said it would partner with the chipmaker to produce more manufacturing equipment in Austin, Texas.
WATCH: Apple and Trump detail $100 billion U.S. spending expansion: Here’s what to know
Lip-Bu Tan, chief executive officer of Intel Corp., departs following a meeting at the White House in Washington, DC, US, on Monday, Aug. 11, 2025.
Alex Wroblewski | Bloomberg | Getty Images
Intel shares rose 7% on Thursday after Bloomberg reported that the Trump administration is in talks with the chipmaker to have the U.S. government take a stake in the struggling company.
Intel is the only U.S. company with the capability to manufacture the fastest chips on U.S. shores, although rivals including Taiwan Semiconductor Manufacturing Company and Samsung also have U.S. factories. President Donald Trump has called for more chips and high technology to be manufactured in the U.S.
The government’s stake would help fund factories that Intel is currently building in Ohio, according to the report.
Earlier this week, Intel CEO Lip-Bu Tan visited Trump in the White House, a meeting that took place after the president had called for Tan’s resignation based on allegations he has ties to China.
Intel said at the time that Tan is “deeply committed to advancing U.S. national and economic security interests.” An Intel representative declined to comment about reports that the government is considering taking a stake in the company.
“We look forward to continuing our work with the Trump Administration to advance these shared priorities, but we are not going to comment on rumors or speculation,” the spokesperson said.
Tan took over Intel earlier this year after the chipmaker failed to gain significant share in artificial intelligence chips, while it was spending heavily to build its foundry business, which manufactures chips for other companies.
Intel’s foundry business has yet to secure a major customer, which would be a critical step in moving towards expansion and giving other potential customers the confidence to turn to Intel for manufacturing.
In July, Tan said that Intel was canceling plans for manufacturing sites in Germany and Poland and would slow down development in Ohio, adding that spending at the chipmaker would be closely scrutinized.
Under Trump, the U.S. government has increasingly moved to put itself at the center of deals in major industries. Last week, it said it would take 15% of certain Nvidia and Advanced Micro Devices chip sales to China. The Pentagon bought a $400 million equity stake in rare-earth miner MP Materials. It also took a “golden share” in U.S. Steel as part of a deal to allow Nippon Steel to buy the U.S. industrial giant.
Intel shares are now up 19% this year after losing 60% of their value in 2024, the worst year on record for the chipmaker.
WATCH: Trump decision to allow chip sales to China is ‘reverse tariff’
Alexander Karp, chief executive officer and co-founder of Palantir Technologies Inc.
Scott Eelis | Bloomberg | Getty Images
Palantir‘s astronomical rise since its public debut on the New York Stock Exchange in a 2020 direct listing has been nothing short of a whirlwind.
Over nearly five years, the Denver-based company, whose cofounders include renowned venture capitalist Peter Thiel and current CEO Alex Karp, has surged more than 1,700%. At the same time, its valuation has broken new highs, dwarfing some of the world’s technology behemoths with far greater revenues.
The artificial intelligence-powered software company continued its ascent last week after posting its first quarter with more than $1 billion in revenue, reaching new highs and soaring past a $430 billion market valuation.
Shares haven’t been below $100 since April 2025. The stock last traded below $10 in May 2023, before beginning a steady climb higher.
Retail investors are a key part of the stock’s strength.
Last month, retail poured $1.2 billion into Palantir stock, according to data from Goldman Sachs.
Here’s a closer look at Palantir’s growth over the last five years and how the company compares to megacap peers.
Government money
Government contracts have been one of Palantir’s biggest growth areas since its inception.
Last quarter, the company’s U.S. government revenue grew 53% to $426 million. Government accounted for 55% of the company’s total revenue but commercial is showing promise. Those revenues in the U.S. grew 93% last quarter, Palantir said.
Still, one of the company’s oldest customers is the U.S. Army.
Earlier this month, the company inked a contract worth up to $10 billion for data and software to streamline efficiencies and meet growing military needs. In May, the Department of Defense boosted its agreement with Palantir for AI-powered battlefield capabilities by $795 million.
“We still believe America is the leader of the free world, that the West is superior,” Karp said on an earnings call earlier this month. “We have to fight for these values; we should give American corporations, and, most importantly, our government, an unfair advantage.”
Beyond the U.S.
The U.S. has been a key driver of Palantir’s growth, especially as the company scoops up more contracts with the U.S. military.
Palantir said the U.S. currently accounts for about three-quarters of total revenues. Commercial international revenues declined 3% last quarter and analysts have raised concerns about that segment’s growth trajectory.
Over the last five years, U.S. revenues have nearly quintupled from $156 million to about $733 million. Revenues outside the U.S. have doubled from about $133 million to $271 million.
Paying a premium
Palantir’s market capitalization has rapidly ascended over the last year as investors bet on its AI tools, while its stock has soared nearly 500%.
The meteoric rise placed Palantir among the top 10 U.S. tech firms and top 20 most valuable U.S. companies. But Palantir makes a fraction of the revenue of the companies in those lists.
Last quarter, Palantir reported more than $1 billion in quarterly revenue for the first time, and its forward price-to-earnings ratio has surged past 280 times.
By comparison, Apple and Microsoft posted revenue of $94 billion and $76 billion during the period, respectively, and carry a PE ratio of nearly 30 times.
Forward PE is a valuation metric that compares a company’s future earnings to its current share price. The higher the PE, the higher the growth expectations or the more overvalued the asset. A lower price-to-earnings ratio suggests slower growth or an undervalued asset.
Most of the Magnificent Seven stocks, except for Nvidia and Tesla, have a forward PE that hovers around the 20s and 30s. Nvidia trades at more than 40 times forward earnings, while Tesla’s sits at about 198 times.
At these levels, investors are paying a jacked-up premium to own shares of one of the hottest AI stocks on Wall Street as its valuation has skyrocketed to astronomical heights.
“This is a once-in-a-generation, truly anomalous quarter, and we’re very proud,” Karp said on an earnings call following Palantir’s second-quarter results. “We’re sorry that our haters are disappointed, but there are many more quarters to be disappointed.”
CNBC’s Gabriel Cortes contributed to this story.
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