over 3 years ago • 2 mins
Three hot software startups are among the companies set to raise a combined $7 billion from selling new shares on the US stock market this week – but recent events are a reminder that tech stocks represent risk as well as reward 🤔
The last time America saw a spate of initial public offerings (IPOs) this large was the week ride-hailing firm Uber listed in May last year. While investors’ appetite for IPOs subsequently waned, the second half of 2020 has proved to be bumper: US company listings alone have raised $70 billion so far this year, already the second-biggest annual total since 2000.
And there’s more to come. Cloud software business Snowflake is likely to raise $2.2 billion from new stock sales on Tuesday, joined by smaller competitorSumo Logic later in the week. Video game developer Unity Technologies, meanwhile – whose principal platform powers around half of all mobile games – is expected to net around $1 billion from new investors 🎰
US stocks’ high valuations – due in part to central bank support – may have a lot to do with the sudden rush to “go public”. Software firms in particular are currently priced at 34 times estimated 2020 profits; their shares have outperformed the broader US S&P 500index by 27% this year…
When the going’s good, IPOs are a win-win for companies and their investors. According to data provider Dealogic, the average newly public stock in 2020 has risen 23.7% on its first day and 25.4% in the first week, compared to 12.8% and 15.2% in 2019.
Investing should be a long-term game, however; and most new stocks end up, like Rocket Internet, sitting below their IPO price five years down the line. Rather than taking a scattergun approach, then, potential buyers may want to take a tip from billionaire investor Warren Buffett – whose firm is backing Snowflake – as well as our new Pack on Analyzing Financial Statements 😉
Investing in companies based on financial fundamentals rather than mere hype should help minimize the sort of volatility that’s plagued the likes of controversial electric truckmaker Nikolarecently. With tech stocks in general stuttering and November’s US elections giving markets the jitters, investors might want to avoid anything too outlandish...
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.