For over two decades, ambitious technology companies have often viewed the United States as the premier destination for initial public offerings (IPOs). The rationale has been clear: the U.S. markets provide significant scale, liquidity, and global visibility, making it an attractive option for companies aiming to increase their market presence. The U.S. boasts large pools of capital, comprehensive analyst coverage, and consistently commands the attention of global investors. However, with recent shifts in the investment landscape, this conventional wisdom deserves closer scrutiny.
Recent data from Cboe highlights a striking statistic: the average daily notional value traded in U.S. equities hit approximately $1 trillion last year, signaling record activity. In contrast, Europe’s equity trading averaged around €70 billion for the entire year, according to Rosenblatt Securities, underscoring a persistent disparity in scale between the two regions.
Yet a deeper analysis conducted by SIX Group reveals that although U.S. markets exhibit higher trading volumes, this liquidity is disproportionately concentrated among a small number of domestic issuers. In a recently examined year, the average daily trading value of stocks in the U.S. reached about €288 billion, compared to roughly €65 billion in Europe, marking a particularly weaker year for European equity markets. Notably, 79 mega-cap stocks—constituting only about 3% of listed companies in the U.S.—accounted for over half of the total turnover, suggesting the perceived liquidity advantage may be less beneficial for mid-sized issuers than anticipated.
For companies valued between $1 billion and $5 billion, the variations in trading turnover between the regions present a nuanced picture. Average daily trading turnover sits at around 0.1% for European-listed firms outside of Switzerland, compared to 0.3% for foreign issuers in the U.S. Swiss-listed companies fall in between at 0.2%.
Valuation trends also present complexities that are frequently misinterpreted. The headline price-earnings multiples in the U.S. are largely driven by a select group of dominant technology stocks, which represent nearly one-third of the U.S. equity market—significantly more than the approximately 7% seen in Europe. When these outliers are omitted, the valuation metrics narrow but don’t entirely vanish. European indices generally trade at about a 30% discount to their U.S. counterparts in terms of forward price-earnings ratios, tapering to the high 20% range when the largest U.S. tech stocks are excluded. This discrepancy reflects sector mix and growth expectations rather than a fixed penalty for companies based on their listing location.
According to a report from the New Financial think tank, 70% of the 130 European companies that relocated to the U.S. in the past decade were trading below their listing price by April, and fewer than 20% outperformed the S&P 500 since their IPOs. Most strikingly, three-quarters failed to exceed the performance of European market indices.
Furthermore, the U.S. IPO mechanism might inadvertently suppress pricing outcomes. Constraints on pre-IPO investor engagement can stifle initial price discovery and inflate uncertainty surrounding demand. Consequently, underwriters may opt for larger IPO discounts to assure execution, which can negate any potential valuation benefits. Moreover, underwriting fees tend to be steeper in the U.S., ranging from 4% to 7% of gross proceeds, as opposed to 2% to 5% in Switzerland.
The rise of passive investment strategies adds another layer of complexity to this equation. Funds that track equity indices now represent a considerable fraction of daily market transactions. European firms, operating in more concentrated markets, can often meet index inclusion thresholds more swiftly. Of the approximately 130 European companies tracked that made the switch to the U.S., only two have been welcomed into the S&P 500, and a mere four into the Nasdaq 100.
In terms of analyst coverage, larger U.S. firms enjoy robust attention. However, the scrutiny faced by smaller and mid-sized foreign issuers in the U.S. is comparable to that of firms listed in Europe. For instance, domestic U.S. companies valued at $1 billion to $5 billion typically receive coverage from 12 analysts, while foreign issuers in the U.S. are covered by an average of nine analysts—akin to the level seen for stocks on European exchanges.
For companies primarily generating revenue in Europe, being listed closer to their core investor base could lead to more stable valuation outcomes. While U.S. capital markets remain crucial and sophisticated—offering profound opportunities for certain firms—the assumption that a U.S. listing is the optimal choice for non-U.S. technology issuers warrants a reconsideration. The prevailing narrative that a U.S. IPO is inherently superior may not hold as much merit as previously believed.
