Speculation is building around a potential initial public offering (IPO) from OpenAI. The artificial intelligence company behind groundbreaking tools like ChatGPT has quickly become one of the most influential tech firms in the world. If the company eventually decides to go public, it could become one of the most highly anticipated IPOs in years.
But one of the most effective ways to invest in an IPO might actually be by not investing in an IPO directly at all.
That may sound counterintuitive at first. After all, IPOs often generate enormous excitement in the financial markets. When a well-known company finally goes public, investors rush in, hoping to buy shares early and ride a massive wave of gains. Sometimes that strategy works incredibly well. Other times, it doesn't.
The reality is that investing in IPOs can feel a lot like flipping a coin.
Some companies debut on the stock market and explode higher. A famous example is Amazon. When Amazon (NASDAQ: AMZN) went public in 1997, few people could have predicted that it would become one of the most valuable companies in the world. Early investors who held on saw extraordinary returns.
However, for every success story like Amazon, there are plenty of IPOs that fail to live up to expectations. Even strong brands sometimes struggle early in the public markets. Ferrari, for instance, initially disappointed investors following its IPO before eventually finding stronger momentum later on. Many other companies never recover from a weak public debut.
Because of this uncertainty, buying into an IPO can be risky—even when the company looks promising.
Why is There So Much Interest in an OpenAI IPO?
OpenAI has already raised significant capital from major investors. Recently, the company confirmed a valuation of about $110 billion. This has fueled even more speculation that an IPO could eventually happen.
According to Beincrypto.com, OpenAI has secured billions in private funding over the past several years. Its most significant partner remains Microsoft (NASDAQ: MSFT), which has committed multi-year investments reportedly totaling around $13 billion through structured equity agreements and cloud partnerships.
The newest funding round reportedly includes massive contributions from several technology giants:
- SoftBank is expected to invest around $30 billion.
- NVIDIA (NASDAQ: NVDA) could contribute another $30 billion
- Amazon may invest as much as $50 billion.
- Additional financial investors are also expected to participate as the funding round continues.
With backing from some of the biggest companies in the world, OpenAI could easily become one of the largest tech IPOs ever—if it chooses to go public.
But even with that excitement, investors may want to consider alternative ways to gain exposure to IPO opportunities without betting everything on a single stock. In this case, there are two exchange-traded funds (ETFs) they may want to consider.
First Trust US Equity Opportunities ETF (FPX)
With an expense ratio of 0.61%, the First Trust US Equity Opportunities ETF (NYSEARCA: FPX) focuses specifically on newly public companies. The fund tracks many of the most prominent IPOs shortly after they begin trading, giving investors access to emerging public companies during their earliest—and often most important—days in the market.
The benefit of this approach is diversification. Instead of placing a risky bet on one IPO that might soar or crash, investors gain exposure to a broad group of newly public companies. If some stocks perform poorly, others may offset those losses.
Historically, the FPX has delivered impressive long-term results despite the volatility of individual IPOs. Even with several high-profile IPO failures over the years, the ETF climbed from a low of about $11 in 2009 to a recent high of around $171.
That kind of performance demonstrates how diversification can smooth out the unpredictable nature of IPO investing. Whether a particular new stock becomes the next big success or turns into a disappointment, the overall excitement around IPO activity tends to support the ETF over time.
Renaissance IPO ETF (IPO)
The Renaissance IPO ETF (NYSEARCA: IPO) has an expense ratio of about 0.6% and focuses on the largest and most liquid U.S.-listed companies that have recently gone public. According to Renaissance Capital, the fund aims to provide investors with exposure to newly public stocks while reducing the risks associated with owning just one company.
By holding a basket of recent IPOs in a single security, investors can participate in the growth potential of new companies while maintaining diversification across different sectors and industries.
The Renaissance IPO ETF has also delivered strong performance recently. Since November 2023, the fund has climbed from a low of roughly $30 to about $43 today. If market momentum continues, investors may eventually see the ETF push back toward $60 per share—a level it last reached in 2022.
Own the Entire Opportunity
For investors interested in the excitement surrounding IPOs—especially potential blockbuster offerings like OpenAI—ETFs such as FPX and IPO may offer a more balanced approach. Instead of gambling on a single company, these funds allow investors to benefit from the broader wave of innovation and growth that new public companies bring to the market.
In the world of IPO investing, sometimes the smartest move isn't picking the next big stock. It's owning the entire opportunity.
