The IPO Market Is Heating Up Again. These Financial Stocks Stand to Win.

The house always wins is a saying in the casino world, but it is one that has equal importance in the finance industry. Keep that in mind as you watch the news flow leading up to huge initial public offerings (IPOs) for private companies like SpaceX, OpenAI, and Anthropic. The only companies that are guaranteed to benefit from these IPOs are investment banking firms like Goldman Sachs (GS 4.84%) and Morgan Stanley (MS 2.68%). However, discount brokers like Interactive Brokers (IBKR 3.02%) and Robinhood (HOOD 6.55%) are likely to see a business boost, too. Here's what you need to know. Image source: Getty Images. What normally happens in an IPO? A company doesn't just randomly decide to hold an IPO one day. It is a long and difficult process that requires jumping over material legal and financial hurdles. Most companies, particularly large ones, that hold an IPO work with other companies to get the deal over the finish line. There's also the important task of introducing the investing community to the company before the IPO, to ensure there are buyers when the stock becomes available. Strong relationships in the finance industry are vital to that effort. Helping companies through this process is a key part of what Morgan Stanley and Goldman Sachs do as finance businesses. Providing investment banking services, including generating underwriting fees from IPO deals, can be highly profitable for both of these giant, diversified finance companies. That said, the IPO market goes through periods of boom and bust, so the business is very lumpy. Today's Change(-4.84%) $-52.85Current Price$1039.76 When investors are excited about the market, certain sectors, or companies, there can be a lot of IPO activity. SpaceX is an example of company-specific excitement, while OpenAI and Anthropic are both artificial intelligence stocks seeking to capitalize on the excitement around the broader AI sector today. To go back to the gambling reference above, Morgan Stanley and Goldman Sachs are "the house" when it comes to IPOs. And, as a kicker, underwriters are often given stock during an IPO, too. That can seriously sweeten the deal for companies like Morgan Stanley and Goldman Sachs. Today's Change(-2.68%) $-5.85Current Price$212.42 An investor frenzy can be big news for brokers While investment banks help put the pieces of a successful IPO together, another group of companies can benefit from exciting IPOs: brokers. When an IPO rockets higher on its first day of trading, it is because investor demand for the shares is high. That usually shows up as elevated trading activity in the stock of a newly public company. When it comes to stock trades, "the house" is your broker. The more the public trades, the more income companies like Interactive Brokers and Robinhood generate. Today's Change(-3.02%) $-2.63Current Price$84.43 This is particularly important for companies like SpaceX, OpenAI, and Anthropic, as their IPOs are likely to attract small investors who haven't been able to buy during earlier rounds of funding. Investors usually hope to jump aboard a rocket ship that creates wealth quickly. To be fair, if the investment banks do their job, the stock will come public at the "correct price" and not rise or fall. However, that's usually not what happens, with investor emotions often taking over in big deals, leading to dramatic price moves. Those price moves draw in more investors, creating a feeding frenzy. And the brokers benefit from each and every trade. Maybe skip the IPOs and buy the "house"? Obviously, Goldman Sachs, Morgan Stanley, Interactive Brokers, and Robinhood are nothing like SpaceX, OpenAI, or Anthropic. If you are interested in these IPOs, you won't be happy buying the financial companies that help IPOs happen. However, Goldman Sachs, Morgan Stanley, Interactive Brokers, and Robinhood are likely to benefit from these IPOs regardless of what happens to the newly traded stocks. And that might actually make these financial companies more attractive to some investors.