IPO activity is expected to pick up in 2024. Nasdaq Co-President Nelson Griggs points to a few reasons for an uptick including improved investor sentiment and the success IPOs have seen so far this year. Griggs expects that if that success continues, there could be more IPO activity picking up in the back half of the year, but he cautions that there is still a "'I need to get a bit bigger' to be a public company" mentality for some companies.

"We have seen a pretty dramatic build of companies that would like to go public. I think we just have to see these companies that do go out now do well and then the investors will be excited to participate," Griggs adds.

Watch the video above to hear Griggs explain why we are just at the start of the AI impact on the IPO market.

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Stephanie Mikulich.

Video Transcript

MADISON MILLS: The IPO market is on the road to recovery with the Renaissance IPO ETF rising nearly 40% in the last year, outpacing gains that we're seeing in the S&P 500. Companies like Astera Labs leading the hype up over 20% since its public debut. That was back in March. And this comes as investors continue to double down on AI.

For more on the IPO market, we're joined by Nelson Griggs. He's Nasdaq's Co-President. And alongside, our very own executive editor Brian Sozzi.

Thank you both for being here this morning. Nelson, I do want to start with some of the news that happened this weekend that we've been talking about all morning here. And I'm curious from your perspective, do geopolitical risks have any impact on the IPO market?

NELSON GRIGGS: Typically, no. Usually, you'll see a short-term shock. We'll see how it plays out over time. If it obviously got increasingly more serious, certainly it could have an impact on the markets.

I think the biggest thing people are watching is what happens to oil prices. You know, we have some inflation data that it kind of ticked up. Does that carry forward to that? But I think overall, you see the geopolitical environment not dramatically impacting the IPO market.

BRIAN SOZZI: What are companies waiting for it to go to public?

NELSON GRIGGS: What are companies waiting for? That's a great question. So I think what we're looking for is the market starting to build. A bit at the end of last year, you had companies' financials go stale. So they had to do some resetting in the February time frame.

And now, we have the market conditions for them. We have investor sentiment, you know, stronger towards IPO markets with the ones that have gone out do fairly well. So I think we're just in this building phase of the more companies go in April and May and do well, then we're anxious for a back half of the year a little bit more pick up. But there's still this, you know, I need to get a bit bigger to be a public company than we saw in 2020 and '21.

SEANA SMITH: Nelson, how much more pickup are you expecting in the second half of the year?

NELSON GRIGGS: That's great. I wish I had the answer to that. I'd say we do see the pipeline building. We have about 156 companies that are on file to go public versus 146 last year.

But there's a good cleaning out last year. Some that really were not going to go public. So we have seen a pretty dramatic build of companies that would like to go public. I think we just have to see these companies that do go out now do well. And then, the investors will be excited to participate.

BRIAN SOZZI: I think Jamie Dimon brought up a good point in his annual letter a week or so ago, Nelson, that companies may not want to go public because of the regulatory backdrop. When you're out there meeting with potential IPO candidates, what do they tell you about this?

NELSON GRIGGS: Well, I've been at this for over 20 years now. And I think that has been a discussion point for that entire time. And I do feel that companies of a certain maturity level have-- there's a process to go public. The financial requirements for reporting are well known.

So I don't see that being a really large impediment, although companies do have to be prepared for it. And we have a lot of tools and services to help them do that. But at the end of day, I don't see that being the biggest impediment. It's really market sentiment companies-- do you want to go public? They want to have liquid currency. So it's not a top priority or concern.

MADISON MILLS: It seems like kind of a talking point. I know you're not going to say that. So I'll say it. But it's always good to blame the regulatory environment when you're really just waiting for interest rates to come down.

NELSON GRIGGS: Yeah. No, I would agree with that. So I think the regulatory environment, companies have gotten used to what that means. The auditors have gotten used to what that means.

So you had Sarbanes-Oxley was going to kill the IPO market. And we obviously saw a pretty good resurgence over the years. There's always this next thing that might kill the IPO market. But it does come down to investors' interest in IPOs and companies wanting to take the risk in a new company and how have we, the previous class, done.

We have this IPO sentiment index we put out. And it takes really five or six factors together. And it is a great environment now to think about going public. So I think IPO winners are real when the market is there and ready to go, companies need to go. But we did have a kind of a multi-year reset for what it means to be a public company.

BRIAN SOZZI: When some of these companies ultimately come out of this pipeline, Nelson, are we going to hear about AI, or is every single company some AI company with a $10 billion-plus market cap?

NELSON GRIGGS: Yeah. I think that's a great question. I was out in the West Coast two weeks ago. I think most companies go public will have an AI component and talk about how they're leveraging AI, either for efficiencies or new offerings. I think the pure play AI companies in this new world of generative AI are probably still several years away because they're newer. So I think there's no way you're not going to hear AI a couple hundred times.

BRIAN SOZZI: So we're just getting a taste.

NELSON GRIGGS: We're just getting a taste. But what is happening in that field is absolutely remarkable. We're seeing an enormous amount of VC money go into the AI offerings. And whether it's, again, a pure play software hardware have you, it's a new massive new age enabler to get more companies to be more efficient and to grow. So it's exciting.

SEANA SMITH: Nelson, in addition to AI, are there any other common themes or common factors that you've noticed in your recent conversations just about companies that are thinking about going public? What is top of mind for business leaders right now, and maybe what that could signal here over the next several months?

NELSON GRIGGS: Yeah. It really is that consistency of revenue. I think most companies are looking at being a bit larger than they would have looked at being a couple of years ago.

So that consistency of annual recurring revenue. And they obviously got the message loud and clear these last few years that investors are also looking to add either profitability or a path to profitability. So I think just the business dynamic as companies thought about what investors want, which can change, you know, quickly, has moved towards that reoccurring revenue and a path to profitability.

BRIAN SOZZI: Thanks for letting us ring the bell today. I appreciate it, man.

SEANA SMITH: It was so much fun.

BRIAN SOZZI: To be honest--

NELSON GRIGGS: It was fun. You guys brought it. You guys brought a lot of energy. A lot of enthusiasm.

BRIAN SOZZI: That's what we do at Yahoo Finance.

SEANA SMITH: There's a lot of clapping. My hands are still recovering from all that clapping.

NELSON GRIGGS: It tingles for, like, at least two minutes afterwards, right? But you guys have been an amazing partner to us at Nasdaq. We're really thrilled to work more with Yahoo Finance.

SEANA SMITH: A lot of fun. And we're really excited to be hosting the shows here, at least this morning. So thank you so much. Thank you Nelson for taking the time to join us here. And of course, to Sozzi as well.