By Alexis R. Garcia
IPO fever has gripped Wall Street as investors await the stock-market debuts of SpaceX, Anthropic and OpenAI.
Traders see this crop of initial public offerings as a generational chance to cash in on the artificial-intelligence boom that has catapulted major stock indexes to new highs. Yet history shows that navigating newly public companies can test the mettle of even the most bullish growth investors.
Research compiled by Eve Boboch, Kathy Donnelly, Eric Krull and Kurt Daill in the book "The Lifecycle Trade" found that more than 90% of IPOs eventually trade below their first-day low. Even if a stock eventually recovers, that process can take a long time.
The 'base' case
That is why it is best to wait a few days or weeks for an "IPO base" to take shape on any new issue, regardless of whether it is soaring or crumbling. An IPO base is a period that happens within the first 25 days of trading where a stock stabilizes and trades in a narrow range. Think of it as a technical rest stop. It gives a new stock's early volatility time to cool off while institutional investors accumulate shares, establishing a potential price floor.
While this pattern generally develops over two to five weeks, it can form in as little as seven days. The IPO base usually starts when the stock stabilizes and then reaches a high mark. That high mark, or initial peak, shows up sometime after a stock's debut. The key is to look for a stabilization in pricing.
After that initial high point shows up, the price often dips for a certain period of time before climbing to a point where investors would want to consider purchasing. The dip, known as the "pullback" within the IPO base, is typically shallow. The stock usually drops no more 20% from its initial peak during this period. However, during periods of heightened market volatility, that price drop can deepen to 50% before the stock starts climbing again.
The stock reaches a "buy point" -- a juncture where a stock's performance and market conditions reach an optimal point for investing -- when shares climb above the initial peak that started the base. Investors often make the mistake of assuming that they should "buy low and sell high," but that can be too risky. Formations such as an IPO base force a stock to prove itself before the investor steps in. History shows that the best stocks often go on a significant run after breaking out of a base. In other words, buying a quality stock high often leads to selling much higher.
Research done by senior market strategist Mike Webster at Investor's Business Daily shows the most successful IPO base breakouts share two key traits: a major single-day price surge and heavy trading volume. This combination indicates overwhelming market demand and confirms that large institutional funds are actively driving the share price higher.
The Google base
The 2004 debut of Google, a stock now trading as Alphabet, offers a textbook example of an IPO base in action. After it started trading on Aug. 19 that year at $85 a share, the stock settled in a price range around $100 almost immediately. The base then started forming when the stock reached a high of $113.48 on its third day of trading.
The shares then started to decline but that pullback was considered shallow, as the stock dropped just 13% from that $113.48 peak before rising again. During that pullback, the stock moved a shade below its IPO price but volume turned lower as shares dipped -- a positive sign that traders weren't selling in high numbers. The base also had a short life as it lasted just 15 trading days.
Investors didn't have to wait long for the base to form and be rewarded. It hit a buy point in heavy volume on Sept. 15. The stock then went vertical, notching eight straight weeks of gains before forming a subsequent base in November. By that time, investors pocketed a 78% gain.
More recently, AI infrastructure provider CoreWeave jumped out of a five-week IPO base on May 14, 2025. Shares nearly tripled in less than three months. The base had a steep correction of 48% from the high of $64.82 to the low of the base at $33.52, but the stock market was also pulling back sharply at the time.
Not every IPO base works out. Take Spotify Technology, which made its debut April 3, 2018. Shares quickly traded in a range with a $169.10 buy point. But the breakout didn't materialize. Institutional buying never picked up and shares struggled to gain traction. By December of that year, the stock had plunged nearly 50% from a high of $198.99.
Like many IPOs, Spotify struggled for a few years and in late 2022, it eventually fell below its IPO price. The stock eventually found its footing and went on a tear the next year. Shares hit a peak of $785 in mid-2025, but have since settled into the $500 range.
Tilting the odds
Newly public companies are prone to wild swings because they lack long-term operational and financial track records for investors to project growth. While the base provides a good entry point to avoid initial volatility, investors can look for several technical green flags that tilt the odds in their favor. To avoid getting trapped in a failed breakout like Spotify's, consider these three points:
-- First, can the stock stay above its initial offering price while forming the base? If shares fall below that level it can be a warning sign of institutional selling.
-- Second, the stock should consistently close in the upper half of its weekly trading range. That shows there is continued demand.
-- Finally, as the base forms, trading volume should fall below where it was when the stock reached that initial peak in the base. That is a sign selling pressure has exhausted itself before the stock attempts its next move.
Waiting for an IPO base to form offers a distinct timing advantage for investors. It protects capital from initial declines and helps investors find a stable entry point that captures institutional momentum.
Read more at Investor's Business Daily.
Alexis R. Garcia is a senior editor of multimedia at Investor's Business Daily. Follow her on X @IBD_Alexis for more stock-market analysis and insights, or email her at alexis.garcia@investors.com.
(END) Dow Jones Newswires
June 06, 2026 10:00 ET (14:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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