First-day fireworks — then usually a reality check.
An IPO pop refers to the price appreciation on the first day of trading above the offer price, driven by excess demand and limited initial float. An IPO fade is the subsequent price decline from that first-day peak as the market normalises supply, lock-up expiries approach, and post-IPO euphoria dissipates.
Underwriters price the IPO the night before trading. They deliberately underprice relative to demand to ensure a pop — a flat or down first day is a PR disaster for the deal team. This means the company left money on the table, but Wall St gets a clean narrative.
On day one, demand from investors who didn't get IPO allocations floods in. The pop is driven by scarcity — the public float is tiny at IPO, so even modest buying pressure moves the price sharply.
Over the following weeks and months, more supply enters the market (secondary offerings, insider sales, lock-up expiries). The stock must now be supported by fundamentals alone, not IPO hype.
Most IPOs fade from their first-day high within 6–12 months. Studies show the average IPO underperforms the broader market in the first three years. The pop benefits IPO allocation holders — not retail buyers chasing on day one.
Rivian IPO'd in November 2021 at $78, opened above $106, and briefly hit $179 in the days following — making it one of the largest ever IPO pops by market cap. Within a year it was trading below $20. The pop was spectacular. The fade was brutal. Anyone buying on day one at open was down over 80% a year later.
Chasing an IPO pop on day one is one of the most reliably wealth-destroying retail behaviours in markets. You are buying at peak hype, peak scarcity premium, and maximum insider motivation to eventually sell. The institutions who got the IPO allocation at $18 are happy to sell to you at $42. Wait for the lock-up expiry, the quiet period dust to settle, and at least two earnings calls before forming a real view on the stock.
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