Wall Street’s ‘meh’ response to tech IPOs shows Silicon Valley’s valuation problem
Instacart celebrates their IPO at the Nasdaq on Sept. 19th, 2023.
Courtesy: Nasdaq
After a 21-month tech IPO freeze, the market has cracked opened in the past week. But the early results can’t be encouraging to any late-stage startups lingering on the sidelines.
Chip designer Arm debuted last Thursday, followed by grocery delivery company Instacart this Tuesday, and cloud software vendor Klaviyo the following day. They’re three very different companies in disparate parts of the tech sector, but Wall Street’s reaction has been consistent.
Investors who bought at the IPO price made money if they sold right away. Just about everyone else is in the red. That’s fine if a company’s goal is just to be public and create the opportunity for employees and early investors to get liquidity. But for most companies in the pipeline, particularly those with sufficient capital on their balance sheet to stay private, it offers little allure.
“People are worried about valuations,” said Eric Juergens, a partner at law firm Debevoise & Plimpton who focuses on capital markets and private equity. “Seeing how those companies trade over the next couple months will be important to see how IPO markets and equity markets more generally are valuing those companies and how they may value comparable companies looking to go public.”
Juergens said, based on his conversations with companies, the market is likely to open up further in the first half of next year simply because of pressure from investors and employees as well as financing requirements.
“At some point companies need to go public, whether it’s a PE fund looking to exit or employees looking for liquidity or just the need to raise capital in a high interest rate environment,” he said.
Arm, which is controlled by Japan’s SoftBank, saw its shares jump 25% in their first day of trading to close at $63.59. Every day since then, the stock has fallen, and it closed on Thursday at $52.16, narrowly above the $51 IPO price.
Instacart popped 40% immediately after selling shares at $30. But by the end of its first day of trading, it was up just 12%, and that gain was practically all wiped out on day two. The stock rose 1.8% on Thursday to close at $30.65.
Klaviyo rose 23% based on its first trade on Wednesday, before selling off throughout the day to close at $32.76, just 9% higher than its IPO price. It rose 2.9% on Thursday to $33.72.
None of these companies were expecting, or even hoping for, a big pop. In 2020 and 2021, during the frothy zero interest rate days, first-day jumps were so dramatic that bankers were criticized for handing out free money to their buyside buddies, and companies were slammed for leaving too much cash on the table.
But the lack of excitement over the past week — amounting to a collective “meh” across Wall Street — is certainly not the desired outcome either.
Instacart CEO Fidji Simo acknowledged that her company’s IPO wasn’t about trying to optimize pricing for the company. Instacart only sold the equivalent of 5% of outstanding shares in the offering, with co-founders, early employees, former staffers and other existing investors selling another 3%.
“We felt that it was really important to give our employees liquidity,” Simo told CNBC’s Deirdre Bosa in an interview after the offering. “This IPO is not about raising money for us. It’s really about making sure that all employees can have liquidity on stocks that they work very hard for. We weren’t looking for a perfect market window.”
Odds are the window was never going to be perfect for Instacart. At the tech market peak in 2021, Instacart raised capital at a $39 billion valuation, or $125 a share, from top-tier investors including Sequoia Capital, Andreessen Horowitz and T. Rowe Price.
During last year’s market plunge, Instacart had to slash its valuation multiple times and switch from growth to profit mode to make sure it could generate cash as interest rates were rising and investors were retreating from risk.
Growing into valuation
The combination of the Covid delivery boom, low interest rates and a decade-long bull market in tech drove Instacart and other internet, software and e-commerce businesses to unsustainable heights. Now it’s just a matter of when they take their medicine.
Klaviyo, which provides marketing automation technology to businesses, never got as overheated as many others in the industry, raising at a peak valuation of $9.5 billion in 2021. Its IPO valuation was just below that, and CEO Andrew Bialecki told CNBC that the company wasn’t under pressure to go public.
“We’ve got a lot of momentum as a business. Now is a great time for us to go public especially as we move up in the enterprise,” Bialecki said. “There really wasn’t any pressure at all.”
Klaviyo’s revenue increased 51% in the latest quarter from a year earlier to $165 million, and the company swung to profitability, generating almost $11 million in net income after losing $11.7 million in the same period the prior year.
Even though it avoided a major down round, Klaviyo had to increase its revenue by about 150% over two years and turn profitable to roughly keep its valuation.
“We think companies should be profitable,” Bialecki said. “That way you can be in control of your own destiny.”
While profitability is great for showing sustainability, it isn’t what tech investors cared about during the record IPO years of 2020 and 2021. Valuations were based on a multiple to future sales at the expense of potential earnings.
Cloud software and infrastructure businesses were in the midst of a landgrab at the time. Venture firms and large asset managers were subsidizing their growth, encouraging them to go big on sales reps and burn piles of cash to get their products in customers’ hands. On the consumer side, startups raised hundreds of millions of dollars to pour into advertising and, in the case of gig economy companies like Instacart, to entice contract workers to choose them over the competition.
Instacart was proactive in pulling down its valuation to reset investor and employee expectations. Klaviyo grew into its lofty price. Among high-valued companies that are still private, payments software developer Stripe has cut its valuation by almost half to $50 billion, and design software startup Canva lowered its valuation in a secondary transaction by 36% to $25.5 billion.
Private equity firms and venture capitalists are in the business of profiting on their investments, so eventually their portfolio companies need to hit the public market or get acquired. But for founders and management teams, being public means a potentially volatile stock price and a need to update investors every quarter.
Given how Wall Street has received the first notable tech IPOs since late 2021, there may not be a ton of reward for all that hassle.
Still, Aswarth Damodaran, a professor at New York University’s Stern School of Business, said that with all the skepticism in the market, the latest IPOs are performing OK because there was a fear they could drop 20% to 25% out of the gate.
“At one level the people pushing these companies are probably heaving a sigh of relief because there was a very real chance of catastrophe on these companies,” Damodaran told CNBC’s “Squawk Box” on Wednesday. “I have a feeling it will take a week or two for this to play out. But if the stock price stays above the offer price two weeks from now, I think these companies will all view that as a win.”
WATCH: NYU professor explains why he doesn’t trust SoftBank-backed IPOs
In this photo illustration a Huawei logo is displayed on a smartphone with a Chinese flag in the background.
Sopa Images | Lightrocket | Getty Images
Beijing has banned semiconductor research firm TechInsights from working with or receiving data from Chinese entities, in a move that could add to the opaqueness of the country’s chip industry.
China’s Commerce Ministry, citing national security concerns, announced Thursday that TechInsights was designated an “unreliable entity,” which prohibits Chinese individuals or organizations from sharing information with the Canadian-based company.
TechInsights is well known in the global tech space for its in-depth coverage of Chinese-made chips and was among the first to report breakthroughs by companies like Huawei Technologies.
Beijing’s crackdown on TechInsights came less than a week after the firm revealed that a breakdown of Huawei’s latest artificial intelligence chips found components sourced from outside mainland China.
TechInsights didn’t respond to a request for comment from CNBC outside normal office hours, while Huawei didn’t immediately respond to an inquiry about TechInsights’ report.
The findings by TechInsights about Huawei’s latest “Ascend” AI chips were consistent with those from other research firms like SemiAnalysis, which said that the Chinese company relies on technology from memory chipmakers like Samsung Electronics and contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC).
These companies are under U.S. export controls, restricting them from selling their most advanced technologies to Chinese customers. Moreover, Huawei has been on a U.S. trade blacklist since 2019, barring chip makers that do business with the U.S. from working directly with it.
In response, Beijing and its chipmakers have stepped up efforts to build a self-sufficient semiconductor supply chain.
Huawei, one of China’s leading players in these efforts, has been developing alternatives to U.S. chip giant, Nvidia, though TechInsights’ latest findings may be seen by some as a knock on such efforts.
Despite its prominence in China’s chip space, few details are disclosed about Huawei’s chipmaking efforts outside of what third-party research firms uncover.
For example, reports have said that Huawei works closely with China’s leading chip foundry SMIC — a competitor of TSMC — though both companies have been silent about any collaboration since Huawei was placed on the U.S. trade blacklist.
Last year, TechInsights reportedly found that a Huawei product contained a chip component from TSMC, triggering questions about the effectiveness of U.S. export controls. The research firm’s latest findings on Huawei’s AI chip could further fuel such concerns.
Analysts say Chinese chip companies have exploited loopholes in U.S. restrictions and drawn on stockpiles of imported chips and components before certain restrictions kicked in.
Demonstrators hold a banner reading “Liberated Zone” during a protest at the Microsoft campus in Redmond, Washington, on Aug. 19, 2025. Microsoft Corp. employees rallied at the company’s Redmond, Washington, headquarters in an effort to ratchet up pressure on the software maker to stop doing business with Israel over its war in Gaza.
David Ryder | Bloomberg | Getty Images
A Microsoft engineer is resigning after 13 years at the software giant, claiming the company continues to sell cloud services to the Israeli military and that executives won’t discuss the war in Gaza.
Scott Sutfin-Glowski, a principal software engineer, informed colleagues at Microsoft on Thursday that this will be his last week at the company.
“I can no longer accept enabling what may be the worst atrocities of our time,” he wrote.
In the letter, he referred to a February Associated Press article that said the Israeli military had at least 635 Microsoft subscriptions, and he claimed the vast majority of them remain active.
Microsoft declined to comment.
Sutfin-Glowski’s announced departure comes a day after President Donald Trump said Israel and Hamas committed to the first phase of a peace plan two years into the latest conflict. The AP reported on Thursday, citing government officials, that the U.S. is sending roughly 200 troops to Israel to help support the ceasefire deal.
The conflict has been a matter of ongoing tension at Microsoft.
For months, employees have protested the company’s cloud business from the Israeli military. Five employees were fired.
In September, Microsoft said it had stopped providing certain services to a division of the Israeli Ministry of Defense, though it didn’t provide specifics. That decision came after Microsoft investigated an August report from The Guardian saying the Israeli Defense Forces’ Unit 8200 had built a system for tracking Palestinians’ phone calls.
Sutfin-Glowski said the company cut off communication systems that allowed employees to bring up their concerns regarding the Israeli military’s use of Microsoft products.
Outside a building at Microsoft headquarters in Redmond, Washington, on Thursday, employees and community members opened up banners calling on the company to drop ties with Israel, according to a statement from No Azure for Apartheid. The group has been asking Microsoft to listen to the more than 1,500 employees who petitioned the company to endorse a ceasefire.
“Today, the ceasefire in Gaza finally takes effect after two years of genocide, but the atrocities, human rights abuses, war crimes, apartheid, and occupation continue,” Sutfin-Glowski wrote.
WATCH: Microsoft is trending toward a $5T market cap, says Wedbush’s Dan Ives
The tablet of the new Tesla Model 3.
Matteo Della Torre | Nurphoto | Getty Images
Tesla is facing a federal investigation into possible safety defects with FSD, its partially automated driving system that is also known as Full Self-Driving (Supervised).
Media, vehicle owner and other incident reports to the National Highway Traffic Safety Administration showed that in 44 separate incidents, Tesla drivers using FSD said the system caused them to run a red light, steer into oncoming traffic or commit other traffic safety violations leading to collisions, including some that injured people.
In a notice posted to the agency’s website on Thursday, NHTSA said the investigation concerns “all Tesla vehicles that have been equipped with FSD (Supervised) or FSD (Beta),” which is an estimated 2,882,566 of the company’s electric cars.
Tesla cars, even with FSD engaged, require a human driver ready to brake or steer at any time.
The NHTSA Office of Defects Investigation opened a Preliminary Evaluation to “assess whether there was prior warning or adequate time for the driver to respond to the unexpected behavior” by Tesla’s FSD, or “to safely supervise the automated driving task,” among other things.
The ODI’s review will also assess “warnings to the driver about the system’s impending behavior; the time given to drivers to respond; the capability of FSD to detect, display to the driver, and respond appropriately to traffic signals; and the capability of FSD to detect and respond to lane markings and wrong-way signage.”
Tesla did not respond to a request for comment on the new federal probe. The company released an updated version of FSD this week, version 14.1, to customers.
For years, Tesla CEO Elon Musk has promised investors that Tesla would someday be able to turn their existing electric vehicles into robotaxis, capable of generating income for owners while they sleep or go on vacation, with a simple software update.
That hasn’t happened yet, and Tesla has since informed owners that future upgrades will require new hardware as well as software releases.
Tesla is testing a Robotaxi-brand ride-hailing service in Texas and elsewhere, but it includes human safety drivers or valets on board who either conduct the drives or manually intervene as needed.
In February this year, Musk and President Donald Trump slashed NHTSA staff as part of a broader effort to reduce the federal workforce, impacting the agency’s ability to investigate vehicle safety and regulate autonomous vehicles, The Washington Post first reported.
Read NHTSA’s Tesla FSD traffic safety violations investigation filings here.
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