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AI is the IPO market's next buzzword

April 26, 2023

Major advancements in artificial intelligence (AI) have attracted billions of dollars in new investment, and the IPO market has taken notice.

The percentage of US IPOs referencing AI in their prospectuses has climbed in each of the past six years, and leapt to 54% in the year-to-date period. These references range from explanations of how a company uses AI, its plans to adopt the new technology, and a discussion of market trends and risk factors.

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The trend shows no sign of slowing. Upcoming IPO Kenvue (KVUE), J&J’s consumer health unit with brands like Tylenol, Listerine, and Band-Aid, states in its prospectus:

We have gradually increased our investment focus into enhancing our digital capabilities, including data science, data analytics, Artificial Intelligence, machine learning and natural language processing.

Years from now, it seems feasible that most companies will incorporate AI and machine learning (ML) into their operations to some degree, and will no longer highlight that fact in their IPO documents, just as companies no longer tout their use of computers or the internet.

For now, IPO investors must increasingly determine how integral AI/ML is to the main business, and how much IP they own. We’ve already seen many IPOs where a proprietary AI/ML technology is central to the investment thesis, including tech IPOs like Mobileye (MBLY; 2022 IPO), (AI; 2020), Palantir (PLTR; 2020), UiPath (PATH; 2021), WalkMe (WKME; 2021), and more recently Xiao-I (AIXI), and life sciences companies like AbCellera (ABCL; 2020), Exscientia (EXAI; 2021), BioXcel Therapeutics (BTAI; 2018), and Recursion (RXRX; 2021).

In many cases, we expect to see companies highlighting enhanced efficiencies achieved with AI tools. Solar tracker firm Nextracker (NXT; 2023 IPO) and fracking services provider ProFrac (ACDC; 2022) use AI to optimize and maintain their equipment, while digital insurer Lemonade (LMND; 2020) and denim brand Levi Strauss (LEVI; 2019) assist customers with AI-powered bots.

Other IPOs will simply look to cash in on the hype by making empty claims, as certain companies did with the buzzword “blockchain” in 2018, or when companies added “.com” to their names in 2000.

It’s worth noting that like other technological breakthroughs, AI has some regulatory uncertainty, which has already started to appear as a risk factor in prospectuses.

In addition to companies that have already IPO'd or filed publicly with the SEC, there are several AI-focused companies on our Private Company Watchlist (exclusive for IPO Pro).