Small-cap recap/preview: Russell 2000 retreats, IPO boom, Nvidia news spurs surge

The main U.S. small-cap index retreated for the first time in six weeks. Meanwhile, the IPO market is booming, particularly in the small-cap segment. A partnership with Nvidia caused a small cap to skyrocket. Here's what happened witb small caps last week May 19-23 and what to watch for this week.

After five consecutive weeks of gains, the Russell 2000 index dropped 3.5% last week,  May 19-23. Small caps underperformed the broader market — by comparison, the S&P 500 lost just 2.6% in the period.

There were headwinds last week from Moody’s downgrade of the U.S. sovereign credit rating from Aaa to Aa1, as noted in a Freedom Broker report. Meanwhile, the small-cap segment is cooling off after a prolonged rally.

Following a tough 2024 for the economy, IPO activity is starting to recover, analysts at consulting firm Highland wrote in a weekly report. The U.S. market saw a wave of new listings, mainly by small Chinese firms, according to the FT.

There were 42 IPOs in the last quarter of 2024 and another 41 in the first quarter of 2025 — making these the two most active quarters in the past 15 years, according to Capital Markets Gateway. Of the companies going public, 53 were from China and Hong Kong, while just 18 were from the U.S. All but nine of the them listed on the Nasdaq. Many firms rushed to go public ahead of stricter listing requirements as the Nasdaq starts to require IPOs to raise at least $15 million starting from April 11. Daniel McClory, head of equity capital markets and China at U.S. underwriter Boustead Securities, told the FT that 30 more companies are in the IPO pipeline, over a third of them being from Southeast Asia and China.

“The microcap IPO market is booming,” said Matthew Kennedy, senior strategist at Renaissance Capital. He noted that small Chinese companies in the pharmaceutical and construction sectors are the most active. “It’s a highly speculative area,” he added. Many investors end up losing money, as most of these stocks fall well below their IPO prices.

Shares of semiconductor maker Navitas Semiconductor Corporation surged more than 160% on Thursday, May 22. Over the course of the week, they rose 112%, closing at $4.40 per share on Friday. The sharp rally was sparked by the announcement of a strategic partnership with Nvidia.

Navitas said it would supply Nvidia with energy-efficient components that significantly reduce power consumption and boost the performance of AI processors. This marks “a major breakthrough” for the company, though Freedom Broker cautions that Navitas’s financials remain weak. In the first quarter, revenue declined nearly 40% year over year, and it posted a net loss of $16.83 million.

The week’s worst performer was biotech UroGen Pharma, whose shares plummeted nearly 45% on Wednesday. By the end of the week, the stock had dropped 42.7% to $4.20 per share. The selloff followed a negative opinion from the Oncology Drugs Advisory Committee, which is part of the U.S. FDA. The panel concluded that UroGen’s bladder cancer treatment was not safe enough to be recommended for approval.

The committee’s decisions are nonbinding, and the final word lies with the FDA. Of the eight analysts covering the stock, six still rate it a “buy,” and two a “hold.” Their average target price is $27.88 per share, implying more than 565% upside.

The small-cap segment may face further volatility this week, driven by the release of key macro data, according to Freedom Broker.

Investor attention will be focused on April household spending from the Bureau of Economic Analysis, set to be released on Friday, May 30. This data will provide insight into the overall state of domestic demand — critically important for the small-cap sector — as well as how consumers are responding to the recent hike in U.S. tariffs.

On Tuesday, the Conference Board will publish consumer confidence for May.

On Thursday, the National Association of Realtors  will release pending home sales, a key leading indicator for the housing market.