Why most IPOs fail – and most of 2026’s likely will

I-P-OH! SpaceX’s record-setting initial public offering captured headlines – and investors’ imaginations.

Many see huge profits with more flashy names such as OpenAI, Anthropic, Databricks and Anduril set to launch their own IPOs – through which their shares hit the public market. A rise in Singapore Exchange (SGX) debuts stokes spirits locally, too.

Be careful: History shows buying IPOs usually brings more disappointment than delight. Beware the hype.

While some project nearly 30 SGX IPOs this year – more than 2023 to 2025’s total – the hottest hype surrounds firms that are US-based, tech-centric and ride AI themes.

Why are these firms going public now? Simple: Sentiment towards tech and artificial intelligence has run hot for many months.

Founders and early investors want maximum benefit when selling ownership stakes to the public. Enthusiasm juices prices – including SpaceX’s June debut roughly doubling Saudi Aramco’s previously held all-time IPO record.

This creates a tension: Founders want to sell high – or get cheap capital. IPO buyers want to buy low. Who likely knows more about a firm’s true value? Add in investment banks’ hype-filled marketing roadshows and the knowledge divide broadens.

Hence what I wrote almost four decades ago in The Wall Street Waltz: IPO actually stands for “It’s Probably Overpriced”.

Hype comes before a fall

Yes, some IPOs leap early but most stumble – such as recent city debutants. Flexible workspace firm JustCo’s shares ended their first day on the SGX 18 per cent below the IPO price… and then tumbled another 30 per cent through Jun 23.

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AI ties do not guarantee IPO success. Customer service software firm Toku rode AI hype to massive IPO demand in January on the SGX’s Catalist board – applications for shares were almost 32 times available supply! It closed 14 per cent above its IPO price on its first day… but then plunged 30 per cent.

Data-centre-focused NTT DC Reit – another AI-linked darling – is down 3 per cent since its July 2025 IPO while the Straits Times Index soared 26 per cent.

SpaceX? It roared 49 per cent above its IPO price in US dollars after three trading days… then sank 23 per cent over the next three. By the time you read this, maybe it is soaring again now. Or maybe not.

This is not a call on any specific IPO – it is about the longer, broader history. For that, consider US stocks (in US dollars): Since 1990, 52 per cent of newly listed companies lagged America’s S&P 500 their first month by a median -0.3 percentage point.

Three months out, 60 per cent lagged by a median -five percentage points. Six months? 63 per cent lagged by a median -11 percentage points. One and two years out, the lag rate nears 70 per cent by medians of -20 and -35 percentage points, respectively.

Time is usually your friend in stocks. Not in IPOs. Of the 48 per cent that led in their first month, 56 per cent lagged a year out.

Love the long-term future of today’s darlings? Fine. But is that in the next three to 30 months, the timeframe stocks weigh? Probably not. Regardless, history shows better entry points are likeliest after the IPO hype fades.

Some say these big, widely known IPOs differ – that they are surefire winners. Doubtful. Name recognition means little. See Facebook’s 2012 belly flop. Or Uber’s underwhelming 2019 debut. Ask yourself: What do you know about these stocks others don’t?

Maybe you get lucky with one that booms. How fast will you sell? Usually, investors benefiting most are those allocated shares before the IPO debut. They pay the issue price but often can’t sell fast tied to lock-up rules.

These mega-IPOs sold shares privately to institutions, exchange-traded fund providers and other private investors. Many are likely eager to lighten up. Who leads that cascade?

Happy scenarios risk another problem. If your IPO buy pops, it feels great – a dopamine rush. Pride swells. Buyers assume it was not luck but skill that yielded that rush. More IPOs, please! But history proves this increases the odds your returns suffer. Think you can emerge unscathed? Pure over-confidence – dangerous!

Then, can you get enough shares in a hot one to be a game changer in your portfolio? If you can, another problem arises: Concentrated positions are incredibly risky. Successful investing means patience and discipline, a gradual journey, not some get-rich-quick scheme.

Another warning: Last October, I told you IPOs were a key market sentiment gauge. A huge issuance can signal dangerous euphoria, teeing up a plunge.

While we are not broadly in euphoria yet, expectations for everything AI and US tech are frothy. Hence, firms’ lining up for IPOs. Elevated sentiment makes positive surprise harder to attain. That favours extreme caution.