Key Takeaways:
Waiting for an IPO base to form can protect investors from the 90% of newly public stocks that eventually trade below their first-day low.
IPO fever has gripped Wall Street as investors await the stock-market debuts of SpaceX, Anthropic and OpenAI, with traders viewing the upcoming listings as a generational opportunity to capitalize on the artificial-intelligence boom that has pushed major indexes to new highs. Yet 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, a statistic that underscores the risk of buying on day one.
"Waiting for an IPO base to form offers a distinct timing advantage — it protects capital from initial declines and helps investors find a stable entry point that captures institutional momentum," said Alexis R. Garcia, senior editor of multimedia at Investor's Business Daily, which published the research in collaboration with the Wall Street Journal.
An IPO base is a period within a stock's first 25 trading days where the price stabilizes and trades in a narrow range, typically forming over two to five weeks but sometimes in as little as seven days. The pattern begins when a stock reaches an initial peak after its debut, then pulls back — usually no more than 20% from that high, though the decline can deepen to 50% during periods of heightened market volatility. The buy point arrives when shares climb back above that initial peak, forcing the stock to prove itself before the investor steps in.
The strategy matters because newly public companies lack long-term operational and financial track records, making them prone to wild swings that can test even the most bullish growth investors. History shows that the best stocks often go on a significant run after breaking out of a base — buying a quality stock high often leads to selling much higher, according to the research.
Google's 2004 IPO: A Textbook Base
Alphabet's 2004 debut offers a textbook example of the IPO base in action. After Google started trading on Aug. 19 at $85 a share, the stock settled around $100 almost immediately. The base began forming when the stock reached a high of $113.48 on its third trading day. Shares then declined 13% from that peak — a shallow pullback — with volume turning lower as shares dipped, a positive sign that traders were not selling in high numbers. The base lasted just 15 trading days.
Investors who waited were rewarded when the stock hit its buy point in heavy volume on Sept. 15. Google then went vertical, notching eight straight weeks of gains before forming a subsequent base in November. By that time, investors had pocketed a 78% gain.
CoreWeave and Spotify: Two Outcomes
More recently, AI infrastructure provider CoreWeave jumped out of a five-week IPO base on May 14, 2025, with shares nearly tripling in less than three months. The base featured a steep correction of 48% from the high of $64.82 to the low of $33.52, reflecting a broader market pullback at the time.
Not every IPO base works out. Spotify Technology debuted on April 3, 2018, and quickly traded in a range with a $169.10 buy point. But institutional buying never materialized, and shares struggled to gain traction. By December of that year, the stock had plunged nearly 50% from a high of $198.99. Spotify eventually fell below its IPO price in late 2022 before finding its footing and surging to a peak of $785 in mid-2025, though it has since settled into the $500 range.
Research 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. Investors can look for three additional green flags: the stock staying above its initial offering price while forming the base, consistently closing in the upper half of its weekly trading range, and trading volume falling below where it was when the stock reached its initial peak — a sign that selling pressure has exhausted itself.
This article is for informational purposes only and does not constitute investment advice.
