IPO Season: Why Patience Is The Name of the Game

**Travis Hoium** (0:02)
It's IPO season, and we're going public with our takes. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium. Today, joined by Lou Whiteman and Jason Moser. Guys, we are gonna get to the IPOs that are coming up. They're coming fast and furious, and the numbers are huge. But I did wanna get your thoughts on the market today, because the entire story over the past few months has been everything AI-related. These bottlenecks, these stocks are going absolutely crazy today. The NASDAQ is recording down almost 3%. The Dow, Lou, interestingly, close to flat. So some of these unloved industrial stocks, not doing all that much, but these hot technology stocks are just taking it on the chin. What do you think is going on today? Is this a real reverse or just kind of a one-day phenomenon?

**Lou Whiteman** (0:54)
Yeah, Dow is saying, how do you like me now, right? With all of that. And look, this is arguably healthy, is one read on it, because when one thing goes up indefinitely, it's bound to not last forever. So if we can have some sort of leveling off during a bull market, that is sustainable for a bull market.
NASDAQ is up 3% over the last month even with today, whether or not this is the beginning of the end or just a blip.
We'll see, none of us know that. I think what we're learning is, and this is all coming off of Broadcom, and we were talking about this as far back as NVIDIA, the market is less impressed quarter to quarter with pretty amazing AI related numbers. We're just kind of, I don't know if we've normalized it or we've come to expect it, or we just kind of believe this is great, but even if it plateaus for a while, it can't keep going up forever. Maybe all of the above, but we're just not getting as much juice out of the day-to-day AI trade at least this week as we have. Again, does that continue? Tell me what AI does in the next few weeks. Tell me when Anthropic releases their actual-

**Travis Hoium** (2:07)
The world-destroying model.

**Lou Whiteman** (2:10)
Or even their numbers. If the rumors are true and they're doing 50 billion right now in reoccurring revenue and it's jumping 2X, that might be the next spark.
I can't get too caught up in the moment, but you should at least notice what's going on, so you're not blindsided if this is the beginning of something.

**Travis Hoium** (2:31)
Yeah, Jason, I like to look at the history of these kinds of things. I was investing back in the dot-com bubble and going back on some of our live shows, but one of the interesting things was the peak from a stock standpoint was not the same as peak from a company performance standpoint, and this is where we talk about the market being a forward-looking mechanism. But if you look at Cisco's performance, Cisco's stock peaked six months or a year before the company stopped growing the way that they were, 100% plus a year.
So is this the market going, the way these customers are now talking about, we got to be a little more efficient, maybe we don't want to spend so much on this, and then extrapolating that out to, maybe memory prices don't go to the moon forever. Maybe demand for chips is not infinite. Is that maybe what the market is thinking about today?

**Jason Moser** (3:26)
Well, I mean, I think at some point that has to be central to the conversation. I mean, you look at some of these companies, the way they performed over the last year, and look at little companies like Coherent and Lumentum, right? I mean, people didn't know those two companies. I know them because I had recommended them in a couple of our services, but that wasn't based on the AI trade. That was long before the AI trade even really became a thing. But if you look at over just this last year, the last 12 months, Coherent is up better than 400 percent. Lumentum is up better than 1,000 percent. I mean, there is just so much enthusiasm there. So we're seeing valuations start to reach levels where you got to ask questions.
We just saw the Continuum IPO yesterday that spanned out from Honeywell. I mean, I think the company's value run $15 billion market capitalization. Now, it generated like $30 million in revenue over the last year.

**Travis Hoium** (4:22)
The revenue rounded about to zero.

**Jason Moser** (4:24)
Yeah, exactly. So I mean, there is a lot of forward looking going on right now. And I think the questions regarding the ROI on some of the spend, the ROI on this AI investments companies are making, as those questions start to grow louder, I think that we're going to see a little bit more focus on these valuations. And yeah, they don't go up forever. But it does seem like that just the enthusiasm has not waned yet.