T. Rowe Price
For years, some of the most closely watched technology and innovation companies have been out of reach for many individual investors. But that may be starting to change with some of the world’s most valuable private companies, like SpaceX, OpenAI and Anthropic, moving toward public markets.
These recent developments raise an important question: What could initial public offerings (IPOs) mean for your portfolio? While that answer ultimately depends on your financial goals, risk tolerance and time horizon, understanding how IPOs work and the different ways to gain exposure can help you decide whether these opportunities fit into your broader investment strategy.
Here's what to know about investing in IPOs and what a new wave of mega IPOs could mean for investors.
How interested investors could build exposure
When companies list, only a portion of shares, known as the free float, is available to buy and sell on the open market. Founders, employees and early investors typically continue to hold the rest, at least for a specified period after the listing.
For individual investors, free float matters because it helps determine how much of a company can be bought by public investors, how much exposure index funds may initially receive and how much trading pressure could develop around the IPO.
Individual investors may have several realistic paths to owning a stake in these companies after they go public. Here are three common pathways:
1. Actively managed funds
Active managers evaluate IPOs through a disciplined research process that considers business fundamentals, valuation, growth prospects, liquidity, risk and portfolio fit. A company going public does not automatically make it an attractive investment opportunity.
An active manager is not required to wait for index inclusion or buy according to benchmark weight. Investment teams can evaluate whether to invest, when to buy and how large a position to hold while adhering to risk management and regulatory rules. Some active funds may also be able to invest in private market positions before a company appears on a public exchange. Active managers must also weigh valuation risk, benchmark exposure, liquidity and overall portfolio risk.
If your portfolio includes funds tracking major benchmarks such as the S&P 500 Index, MSCI Index, FTSE Russell Index, Nasdaq Index or broader total-market indices, you may gain exposure automatically if these companies are added to those benchmarks. But index inclusion is not guaranteed, and timing can vary by index provider. Some indexes also have profitability, trading history, free float or size requirements that can affect whether or when a newly public company is included. Initial exposure is also likely to be modest because index weights are generally based on shares available for public trading, not the company’s full private market valuation.
3. Buying shares directly
Individual investors generally can buy shares directly only after they begin trading publicly on the secondary market. Before that point, access typically requires an IPO allocation through a participating brokerage firm.
After public trading begins, clients may purchase shares through a brokerage account, subject to normal trading rules, market conditions, and order-entry requirements. IPO-day trading can be fast-moving, and execution prices may differ from displayed quotes, especially when using market orders.
Investors should also be aware of upcoming lockup expiries, which can affect the supply of shares available for trading. A lockup expiry is the point when certain insiders, such as employees or early investors, are first allowed to sell shares, often 90 to 180 days after listing.
Near-term volatility is worth keeping in perspective
Major IPO events have often been accompanied by short-term market volatility. As new companies approach public listing or potential index inclusion, some investors may sell existing holdings to raise cash, which can create price pressure around key dates. Scheduled index rebalances can add to this pressure when index-tracking funds adjust their holdings to match updated benchmarks. Broad market disruption may be limited, although actual outcomes could differ depending on liquidity, market conditions and investor behavior.
Some short-term traders may position around key events like the IPO listing, potential index inclusion, the lockup expiry and quarterly index rebalances – which can add to price swings. Long-term individual investors will want to understand why volatility may occur without feeling pressured to react to it. Active managers may also use these periods to evaluate whether changing prices create a more attractive risk/reward profile, rather than buying solely because a company enters an index.
How might mega IPOs affect the long-term market?
Looking ahead, mega IPOs could contribute to meaningful shifts in the composition and leadership of equity markets.
U.S. technology and growth stocks already make up a large share of global benchmarks. If a wave of large AI companies lists and continues to grow, equity indexes could become more concentrated in a narrower set of U.S. growth and AI-linked businesses.
For individual investors, the more important question may not be how these IPOs affect markets in the short term, but what they could mean for portfolios over the long run. As more AI companies enter the public markets, investors may gain new opportunities to participate in the technology's growth. At the same time, it may be worth revisiting whether your portfolio remains well diversified across sectors, regions and investment styles. For those concerned about growing concentration in a relatively small number of companies, a more active investment approach may offer greater flexibility to manage exposure as the market evolves.
4 questions worth asking now
As the IPO landscape evolves, these questions can help investors assess whether and how these developments fit into their broader investment strategy:
- Does my fund have exposure? Exposure depends on the specific funds, exchange-traded funds (ETFs) or individual securities you own. Some funds may hold private companies, but not all do, and holdings can change over time.
- Am I interested in direct exposure? If you are considering buying shares directly, think through your approach before the listings occur. IPO pricing, early trading and lockup expiry windows can each involve different risks and potential return profiles.
- Could near-term volatility affect my plan? Markets may experience pressure around major IPO events and index rebalance dates. For investors with a longer time horizon, awareness and regular portfolio monitoring may be more useful than reacting to media attention or short-term price moves.
- Would a selective approach help me manage exposure? Active managers can make deliberate decisions about when to buy, how much to hold and which companies are worth owning at a given valuation while adhering to risk management and regulatory rules. That flexibility may appeal to investors who want exposure to innovation but do not want their allocation determined only by benchmark rules.
Put IPO opportunities into perspective
High-profile IPOs often generate excitement, but your investment decisions should ultimately be guided by your long-term financial goals, not market headlines. As new companies enter the public markets, a financial advisor can help you evaluate potential opportunities, manage concentration risk and determine whether these investments have a place in your long-term portfolio strategy.