AIQ - What does Oddity Tech signal about IPOs and the future of AI on Wall Street in 2023?

2023-07-29 08:30:00 ET

Heading into the 2023 trading year, investors were bracing for a potential recession and a prolonged battle with inflation. Rising interest rates and geopolitical tensions also fueled concerns, as Wall Street came off a serious correction in 2022.

Instead of a further stumble, however, the major market averages rallied in the first half of the year. One of the main drivers of the upswing so far in 2023: artificial intelligence.

Now, the AI buzz has also seeped into the IPO market. Oddity Tech ( NASDAQ: ODD ), a beauty and wellness business that uses artificial intelligence to develop cosmetics, went public earlier this month. The stock surged in its debut and has held a large chunk of the gains since.

The appetite for this offering, which has been called the most notable venture-backed tech IPO since late 2021, suggests that the interest in AI and AI-adjacent investments remains strong as Wall Street moves into August.

Oddity Comes Public

Oddity Tech ( ODD ) made its public debut on July 19, pricing at $35 per share. This was above its expected range of $32 to $34 a share. In the offering, ODD sold 12.1M shares, raising about $424M. This gave the company a valuation of nearly $2B.

Shares immediately jumped as they began their Wall Street career. The stock continued to rise in its first few days, touching a post-IPO peak of $54.20.

ODD has moderated a bit since then but has held a good chunk of its initial gains. The stock closed Friday at $50.55, up $1.42 on the day and more than 40% above the firm's original offering price.

Oddity Tech ( ODD ) does not represent a pure AI play. Instead, the company leverages artificial intelligence for a consumer product, rather than provide investors direct access to AI-related tech. The company boasts two brands, which it describes as "defining and building the future of beauty through proprietary technology that connects people with superior products fit for them."

Still, the AI connection helped bring the stock significant attention as it came public, possibly paving the way for other similar companies to attract similar investors. This follows a theme that has marked 2023 as a whole, which has seen AI become a critical conversation on Wall Street so far this year.

2023: The Year of AI on Wall Street

In 2023, a small handful of megacap names involved with AI have fueled most of the returns for the major benchmark stock indices. Meanwhile, investors have sought out potential under-the-radar AI plays, a fact which has led companies to highlight the importance of artificial intelligence in their earnings calls, with some shifting their businesses towards the concept.

The AI buzz has also inspired a new wave of exchange traded funds. As an example, the Roundhill Generative AI & Technology ETF ( NYSEARCA: CHAT ) hit the market in late May. The actively managed fund aims to offer exposure to stocks at the forefront of the burgeoning artificial intelligence space. Since its launch, the has advanced 17% .

To further emphasize the prevailing sentiment around the topic of AI, here are comments some of Wall Street’s prominent financial institutions have made recently about the artificial intelligence space:

• "Many profitable AI stocks are already cash generating machines. Incremental benefits of developments like generative AI should accentuate this characteristic,” Citi noted.
• “AI is one of the areas in the market where investors are anticipating earnings to rise, even in the event of a global slowdown,” Bank of America said.
• “We see room to run for the AI theme but are focused on taking a more selective approach to identifying winners in the space,” BlackRock highlighted.
• "Our analyses indicate that many themes that outperformed in the first half, such as robotics & artificial intelligence, cloud computing, and internet of things, may still be attractive,” Global X stated.

While it might take some time for many AI companies to work their way through the IPO pipeline, there are opportunities for investors now. Here are eight AI-focused funds that have all outperformed the S&P 500 ( SP500 ) in 2023.

• GX Artificial Intelligence & Tech ETF ( AIQ ) +46.3% YTD.
• GX Robotics & Artificial Intelligence ETF ( BOTZ ) +40.6% YTD.
• Robo Global Artificial Intelligence ETF ( THNQ ) +41.6% YTD.
• iShares Robotics and Artificial Intelligence Multisector ETF ( IRBO ) +33.2% YTD.
• Artificial Intelligence and Robotics ETF ( ROBT ) +28.7% YTD.
• Goldman Sachs Innovate Equity ETF ( GINN ) +26.2% YTD.
• iShares Exponential Technologies ETF ( XT ) +22.2% YTD.
• ALPS Disruptive Technologies ETF ( DTEC ) +20.9% YTD.

More on Artificial Intelligence:

• Oddity Tech: An Odd Player In The Beauty Market
• SoundHound AI: Riding The AI Hype Train
• BOTZ And UBOT: Opportunistic Investments In AI Trend (Technical Analysis)

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