Emerging Titans: The Next Big AI Companies Poised for IPO
The stock market has witnessed a remarkable surge in enthusiasm for AI stocks, a trend fueled by the sector's potential to revolutionize various industries. The allure of pioneering AI technologies has attracted significant investments, with investors eagerly supporting companies at the helm of AI innovation. This excitement is bolstered by significant breakthroughs and investments in the field, captivating both institutional and retail investors with the promise of being part of the next big wave of technological advancement. The optimism surrounding AI stocks is underscored by their substantial impact and the anticipated financial benefits of AI developments. Leading the charge in performance within the S&P year-to-date are Super Micro Computer (SMCI) with a 257% increase, Nvidia Corp. (NVDA), and Micron Technology (MU), highlighting the sector's lucrative potential. Similarly, the Indxx Global Robotics & Artificial Intelligence ETF (BOTZ) showcases impressive year-over-year gains with companies like NVDA, Symbiotic (SYM), SoundHound AI (SOUN), Upstart Holdings (UPST), and Procept BioRobotics (PRCT) leading. These gains, however, prompt contemplation on the sustainability of this boom and the appetite of investors to continue pursuing such stocks. After a period of robust rallies, a cooling-off phase has ensued, with many AI stocks consolidating. Yet, the recent IPO of Astera Labs (ALAB) has reignited investor interest. Astera Labs specializes in connectivity solutions essential for cloud computing and high-performance computing, crucial for AI and machine learning applications. Its IPO pricing and subsequent market performance underscore the continued investor enthusiasm for AI-related ventures, suggesting a potential revitalization of the IPO market driven by AI. This renewed investment fervor follows significant financial commitments to AI from leading tech firms, like Microsoft's $10 billion investment in OpenAI, signaling a competitive rush to introduce innovative AI solutions. Further investment highlights include Amazon's $4 billion infusion into Anthropic and substantial funding rounds for Cohere and Mistral AI, reflecting ongoing investor confidence amidst a broader startup downturn. Looking ahead, several privately held AI companies are poised as potential IPO contenders in 2024, indicating a vibrant future for AI investments. This landscape offers an intriguing opportunity for investors to engage with the venture capital scene, potentially heralding a new era of technological and financial growth spurred by AI advancements. The following is a list of potential hot upcoming IPOs in the space. Founded in 2005, Klarna, a Swedish bank well-known for its innovative buy now, pay later (BNPL) payment plans, has become a significant player in the financial technology sector. It boasts a daily transaction volume of 2.5 million across a global customer base of 150 million, collaborating with 250,000 merchants across 25 countries. With ambitions far beyond being just another checkout option, Klarna aims to dominate the spheres of payments, shopping, and banking, placing a significant emphasis on the U.S. market. Recently, the U.S. has emerged as Klarna's largest revenue source, where it achieved gross profit for the first time since entering the market in 2015, despite facing operational challenges over the last two years. The economic landscape of recent years, marked by high inflation and rising interest rates, has posed challenges for the BNPL industry, including Klarna. The company experienced a spike in borrowing costs and a significant reduction in its valuation—from $45.6 billion to $6.7 billion—due to the economic downturn. In response, Klarna leveraged generative AI technologies, including ChatGPT, to automate repetitive tasks and develop a comprehensive digital financial assistant, streamlining operations and improving efficiency. These AI-driven strategies not only helped Klarna reduce operational costs but also enhance customer service, demonstrating the potential of AI in scaling businesses effectively. Looking towards the future, Klarna is preparing for a public offering, with potential plans to go public in the third quarter. Recent fundraising efforts have placed the company's valuation at approximately $9.5 billion, with aspirations for a $20 billion valuation at IPO, according to Bloomberg. This comes at a time when the BNPL sector is witnessing growing usage and the market conditions are becoming increasingly favorable for IPOs. With its successful adoption of AI and the strategic positioning in the market, Klarna's upcoming IPO is highly anticipated by investors, marking a significant milestone in the company's journey. Circle Internet Financial, the parent company behind USD Coin, is poised to be a significant player to watch in the second quarter as it gears up for a public offering. Having already filed documents with the Securities and Exchange Commission (SEC), a crucial step towards going public, Circle aims to capitalize on its long-standing public aspirations. Despite a previous attempt to list through a SPAC merger that valued it at over $11 billion, the current climate appears more favorable. The ongoing crypto boom, with Bitcoin at $70,000 and a total crypto market cap exceeding $2.7 trillion, alongside record highs in the S&P 500 and Nasdaq 100 indices, provides a ripe environment for Circle's entry into the public market. Circle's financial health shows promising signs of recovery, especially after the market cap of USD Coin rebounded to $32 billion following a dip in 2023 due to the collapse of Silicon Valley Bank. The company thrives on the rising volume of USD Coin, deriving revenue primarily from transaction and treasury services, USDC interest income, and, formerly, SeedInvest. With the bulk of its income stemming from transaction fees and interest earned on government bonds investments—benefitting from the highest interest rates in 22 years—Circle's interest income has notably increased recently. Although it no longer profits from SeedInvest after its acquisition by StartEngine in 2022, Circle's current focus is likely on leveraging the favorable interest rates and the booming crypto and stock markets ahead of its anticipated public offering. Amid a challenging landscape for enterprise companies seeking growth and favorable valuations, Databricks stands out with its recent $500 million fundraising at a remarkable $43 billion valuation, bolstered by impressive revenue figures. For the fiscal year ending January 31, 2024, the company reported $1.6 billion in revenue, marking over 50% growth from the previous year. This significant growth, particularly notable in the current economic environment, underscores why Databricks has chosen to remain private for now, showcasing its financial health and operational success without the scrutiny of public markets. Databricks has positioned itself as a pivotal player in enterprise computing, especially at a time when data has become central to technological innovation and artificial intelligence. The company's success stems from its ability to serve as the go-to platform for AI and data storage and processing needs. This is in part due to the explosive growth of Databricks SQL, which saw more than a 200% increase in year-over-year growth, contributing to Databricks' standout performance in the enterprise software sector compared to its peers, including Snowflake, its primary competitor. As Databricks continues to experience substantial growth, there is speculation about its potential IPO, which could significantly impact the tech industry and IPO market. Despite having the financial and operational metrics to justify a public listing, Databricks remains cautious, with CEO Ali Ghodsi acknowledging the current challenges in the IPO market. However, with a net expansion rate of 140% and the success of its generative AI-related business, Databricks' future in going public looks promising, potentially setting the stage for one of the most anticipated IPOs in the tech sector. Founded by Patrick and John Collison in 2010, Stripe has become a pivotal force in reshaping the digital economy through its extensive range of online payment processing solutions and services. Tailored to meet the diverse demands of businesses of all sizes, Stripe enables both emerging entrepreneurs and established enterprises to expand their digital footprints effortlessly. Stripe's robust platform extends beyond mere payment processing, offering solutions for subscription billing, online marketplace creation, fraud prevention through advanced machine learning, and comprehensive tools for financial management and compliance. The company's commitment to innovation is highlighted by its integration of GPT-4, developed in partnership with OpenAI, and the strategic hiring of Steffan Tomlinson, a former Google Cloud executive, as its CFO. With a recent funding round bringing in more than $6.5 billion and catapulting the company's valuation to $50 billion, Stripe has solidified its investor appeal and market position. Esteemed backers such as Lightspeed, Temasek, Andreessen Horowitz, and Sequoia affirm Stripe's influential status in the tech landscape, positioning it as an indispensable pillar of the global Internet commerce ecosystem. Founded by a team of ex-OpenAI researchers, Anthropic is quickly emerging as a key player in the competitive field of generative AI, with ambitious plans to develop Claude-Next, a model anticipated to be a tenfold improvement over existing AI technologies. To achieve this, Anthropic aims to secure up to $5 billion in funding over the next two years, beginning with an immediate need for $1 billion. Central to their approach is the concept of constitutional AI, which focuses on creating AI that is not only beneficial and safe but also adheres to ethical standards and mirrors human values across its applications, promising enhanced safety and reliability in sectors such as legal, healthcare, and customer support. Anthropic's Series C funding round, which raised $450 million led by Spark Capital with significant contributions from major tech companies like Google, Salesforce, and Zoom, signals strong industry faith in its innovative vision. This latest round brings Anthropic's total raised capital to $1.45 billion, making it one of the most financially robust newcomers in the artificial intelligence domain. Despite its recent establishment in 2021, Anthropic has attracted hefty investments from tech giants such as Amazon and Alphabet and is reportedly in talks to secure an additional $750 million, following a massive $4 billion investment from Amazon. This rapid accumulation of capital and strategic partnerships highlights Anthropic's potential and dedication to shaping the future of AI. And here is one name that VC watchers can start to play now: Retail investors with no access to the Venture Capital world should take a look at the Destiny Tech 100 ETN (DXYZ). This is an extremely volatile instrument so buyer beware. However, it will be a good instrument to watch when trying to judge investor appetite for new issuances. Destiny Tech100 (DXYZ), which commenced trading on the New York Stock Exchange on March 26, 2024, has offered investors a novel avenue to tap into the growth of leading private companies. The stock, opening at $8.25—significantly up from its reference price of $4.84—saw its value oscillate between $8.25 and $30.48 on the first day, eventually closing at $9.00. Today, the DXYZ skyrocketed to $99 before sliding back to the $85 area. The launch signifies an exciting development for investors looking to access private market opportunities with the liquidity of public markets, as celebrated by the New York Stock Exchange upon welcoming Destiny Tech100. At the heart of Destiny Tech100 is the ambition to democratize investment in top-tier private technology companies, making previously exclusive opportunities available to a broader audience. Destiny XYZ Inc., the firm behind this initiative, has curated a portfolio comprising 100 of the most promising venture-backed technology firms, including high-profile names like SpaceX, which notably constitutes 34% of the portfolio, OpenAI, and Stripe. This approach not only opens the door for everyday investors to partake in the growth of these companies but also reflects a significant shift towards making investment more accessible and transparent. The Destiny Tech100, as a closed-end management investment company, aims to provide substantial returns by investing in companies that are not just leaders in their respective fields but also show potential for high growth. Criteria for inclusion in the portfolio include a recent raise of over $50 million from reputable U.S. investors and a healthy financial structure, among others. With the portfolio already 90% deployed across various sectors like space exploration, entertainment, fintech, and AI, Destiny Tech100 stands out for its strategic investment in companies that offer potential for a 10-50x return, emphasizing the blend of large and medium cap companies that could dominate their markets as they grow. This initiative not only underscores the attractiveness of software and platform-based business models but also highlights the investment potential in companies benefitting from network effects and economies of scale, suggesting a promising future for investors in Destiny Tech100.Klarna
Circle
Databricks
Stripe
Anthropic
Destiny Tech100 (DXYZ)