Klarna's First Day Shows the IPO Boom Is Back

Klarna's (KLAR) stock rose 15% in its first day of trading yesterday.

Over 34 million shares were on offer for the company's initial public offering ("IPO"). And investors were all over it... Demand was eight times greater than the number of shares available.

If you're looking for examples of a hot IPO market, this certainly has that feeling of lightning in a bottle.

Klarna is a payments giant that helps consumers buy online in installments – the modern "buy now, pay later" model. It partners with companies like Garmin, Walmart, Target, and more.

The company is also part of the artificial-intelligence ("AI") story. According to Klarna, 87% of its workforce is using AI every day.

Klarna's success is why the company is going public as a "unicorn" (worth more than a billion dollars from the launch). That's why it's no surprise that we saw headlines like this on Monday...

All in all, it was one of the biggest IPOs in years. And investors hope this is just the start.

Massive IPOs always draw skeptics. Some folks see huge openings and start to worry about signs of a frothy market.

So today, we're going to take a deeper look at what this IPO means, not just for shareholders of Klarna... but for the market as a whole.

What we're seeing is just the early stages of a booming IPO market – not the peak. And AI is fueling that boom.

Even better, you don't have to be a Wall Street insider to invest in these kinds of opportunities.

But before I get to that, let's dig more into Klarna and the mile marker it sets for the IPO market...

Klarna's IPO Has an AI Story Behind It

One sentiment is catching on in executive meetings around the world...

No more hiring.

More management teams are using AI to make their companies better and reduce costs. That includes answering tough questions like, "Do we hire a new person for this role, or can AI do the job?"

Klarna CEO Sebastian Siemiatkowski thinks AI can. And he's been up front about it. Here's what he said in an interview in December 2024 with Bloomberg Technology...

AI can do all of the jobs that we humans do. It's just a question of how we apply it and use it.

This gets at the heart of one of AI's promises: Even if we don't get robots that make Einstein look like a middle schooler, we'll at least get technology that will make companies more efficient over time.

Klarna is testing this idea. The fintech company cut 40% of its workforce in 2023 and 2024, including 700 customer-service agents. Now, AI agents work in their place.

This experiment hasn't come without hiccups. Sebastian did note that good-quality customer service requires a human in the loop. As of May 2025, Klarna plans to hire some workers back so that a human agent is always available at a customer's request.

Even so, AI plays a major role at the company – and not just in customer service.

Klarna will use ChatGPT to update software and write new code. ChatGPT also checks the company's press releases for effectiveness... and even helps draft Klarna's most common types of loan contracts.

So, Sebastian is doubling down on running his company lean. Here's what he said in an interview with CNBC back in May...

We have simply communicated to our employees that what we're going to do is we're gonna shrink, so we're going to stop hiring... Natural attrition in a company like ours is 15-20% per year, so we shrink naturally 15-20% by people just leaving.

Klarna is a great example of companies using AI to run a tighter ship. And if these efficiency gains last, investors can expect better profit margins ahead.

In short, the AI revolution is still playing out in real time...

Klarna just launched the market's biggest IPO in years. Its success shows investors still can't get enough of AI stories.

But Klarna doesn't just tell us what's going on in the AI boom. It's also a sign that a major IPO bull market is about to kick off...

What Klarna's IPO Signals for the IPO Market Rebound

The IPO market was dead from 2022 to 2024. We went through a bear market, decades-high inflation, and rising interest rates.

All of those things lead to uncertainty – and higher borrowing costs. That means investors are less eager for companies to go public.

But that's changing in 2025. That's why Klarna's hot IPO isn't a sign of the top... It's a sign that the "ice age" in the IPO market is finally ending.

We've seen this hot-and-cold pattern several times in the past 25 years...

When the market is hot, the annual number of IPOs soars. Easy money pumps into almost any stock that goes public... And investors can't get enough, driving shares up 50% – or even 100% – on their first day of trading.

Then, times get tough, and the easy money dries up. The number of IPOs crashes. A year or two goes by with very few new listings.

Eventually, most folks want to give up on the IPO market. But that's exactly when it starts to rebound.

In the chart below, you can see four major crashes in the yearly number of IPOs...

You'll notice that these ice ages last for a couple years. Anywhere from two to three years is common. But after that, the market stabilizes, and the number of IPOs jumps.

In 2023, there were only 154 total listings. That rose to 225 in 2024. Both totals were below the average over 25 years... And the 2023 reading was the lowest since 2016.

This year, there have been 235 IPOs so far. The excitement of Klarna's new launch is a signal that appetite is back for new public listings. But the current market is a far cry from what a frothy IPO market can look like.

Take 2020 and 2021, for example... Nearly 500 IPOs took place in 2020. And that number doubled the next year, thanks to a mania in a specific type of corporate structure – the special-purpose acquisition company ("SPAC").

SPACs are formed purely to raise capital. They allow investors to skip the traditional IPO process and go public much faster... making it easier to launch a lot more companies in a short window.

But 2020 and 2021 weren't the only examples of what happens in an IPO boom...

In 1996, 677 IPOs launched. We saw 474 the next year... followed by a dip in 1998 to 283... and then 476 in 1999. In that last year, the average first-day return for an IPO was 71%. (For comparison, it was 15% in 2024.)

This was in the thick of the dot-com boom... when investors were buying technology stocks hand over fist. (Famously, hedge-fund manager Andy Kessler was so worried about the euphoria that he turned down $1 billion in a week... and started giving his clients' money back right near the peak of the boom.)

Today, we're far from any kind of mania like what we saw in the late 1990s or 2021. Klarna's hot debut is just a sign that the IPO market is rebounding, not peaking.

And importantly, you can profit from the coming IPO boom yourself...

How to Make 50% to 100% Gains in the IPO Market

You don't need to be a big shot on Wall Street to take advantage of an IPO boom. You can do it right from your brokerage account, with just one click.

The Renaissance IPO Fund (IPO) takes all of the "guessing" out of picking a big winner in this space.

This exchange-traded fund allows you to profit from a basket of newly listed companies. More than 75% of the fund is based in the U.S., with the U.K. as its second-largest group. And the fund rebalances quarterly so it can include new listings along the way.

Investing in this fund doesn't allow you to profit on a company's first day of trading. But it can help you make big gains as the next IPO boom plays out.

Specifically, this fund has a great track record in the years after an IPO ice age. We saw that in 2013, in the 2016-to-2018 boom, and during the 2020-to-2021 boom.

The fund launched in 2013 and rose 20% within its first year. In the 2016 case, it soared 102% from its February low to its June 2018 high. And in the 2020-2021 frenzy, it jumped 253% in less than a year.

Today, IPO is breaking out to new highs...

This is likely just the early stages of a breakout. And as more IPOs launch in the coming months or even years, this fund is one of the easiest ways to profit from it.

In short, Klarna is just one of the latest IPOs to attract massive demand...

The company had a strong showing on its first day of trading. It will continue to lean on AI to drive revenue and success... It will help prove AI's promises of efficiency... And it will be a useful gauge of investor sentiment.

But the opportunity is much bigger than Klarna as a single company. This stock market debut is just one example of how the IPO market is starting to return to life.

I expect more big listings to come in 2025 and 2026.

The embers of a hot IPO market are just now heating up. And investors who take advantage of it can make big gains.

Good investing,

Chris Igou