Can AI hype fuel an IPO resurgence?

Hello and welcome to Eye on AI.

Reddit today made its explosive debut on the New York Stock Exchange, an IPO largely driven by the surge of interest in data for training AI models. As of this writing, the stock had popped by as much as 60% on its first day of trading.

The highly anticipated listing comes just a day after AI chipmaker Astera Labs saw its shares jump 72% in its first day of trading (and another 20% in midday trading on Thursday), making it the fourth largest IPO in the U.S. this year—and a sign that the appetite for AI stocks is real.

“Most semiconductor startups face a valley of death when capital investments haven’t yet paid off in commercial revenue, but AI adoption has allowed Astera Labs to accelerate out of this phase to reach mainstream usage and high revenue growth,” Brendan Burke, senior analyst of emerging technology at PitchBook, told Eye on AI, adding that the company’s recent AI momentum has “pushed it to go public ahead of a typical schedule.”

It’s a lot of AI IPO buzz, but it’s also becoming clear that AI isn’t purely a boom for the IPO landscape—at least not yet. The wave of enthusiasm for AI is driving IPO momentum in some cases, but it’s also delaying expected IPOs in others. And among those hurtling toward IPOs on the back of AI, it might not be easy trading as lingering legal questions around AI remain unresolved.

For example, Reddit’s big selling point to investors is hinged almost entirely on AI providers paying big bucks to train their models on its user content. Reddit last month said it already secured $203 million in licensing deals with AI companies, including a deal with Google worth about $60 million per year.

“Reddit’s game plan for AI is one good reason why it’s pricing its shares closer to Meta than Snap,” wrote Alex Wilhelm recently in TechCrunch.

This is a murky basket to be putting your eggs in, however. Issues surrounding AI training data and copyright continue to be under intense legal scrutiny and are the subject of an increasing number of lawsuits. Earlier this week, the golden opportunity that is Reddit’s AI content deals landed the company in potentially hot water with regulators. Just days before IPO, the FTC sent a letter to Reddit with questions about its sale of user-generated content to train AI models. Meanwhile, Google just became the first company to be fined over AI training data (more on that below).

Then there’s a case like Databricks. The company, a major platform for data analytics and machine learning—has widely propped up the AI boom and was expected to soon make its public debut in another highly anticipated IPO. Instead, it’s leaning on its recent influx of cash from AI-driven record sales to stay private longer.

“AI momentum enabled the company to increase its valuation by 12% in its recent Series I round. That valuation uplift will enable the company to remain private and may enable further private funding as the company continues its high growth period,” said Burke.

In an interview about why the company is now holding off on going public, Databricks cofounder and CEO Ali Ghodsi told the Wall Street Journal “the markets seem pretty shut.”

“We’re certainly ready as a company: The way we’re operating, the way we’re doing our audits, the way our financials are, the CFO, the board structure,” Ghodsi said. “So we’ll make a strategic decision whenever that time comes.”

That was before Altera and Reddit began trading of course.

With that, here’s more AI news.

Sage Lazzaro
sage.lazzaro@consultant.fortune.com
sagelazzaro.com

This story was originally featured on Fortune.com