Arm’s $52 Billion IPO: A Tech Industry Barometer Amidst High Demand and Challenges
Arm’s Impending IPO
Arm, the UK chip designer, is making headlines as it gears up for its highly anticipated initial public offering (IPO) this Thursday. With shares priced at $51 each, the company is set to debut with a market valuation of a substantial $52.3 billion.
This price falls at the upper end of the initially projected range of $47 to $51 per share, and the reason is clear: overwhelming demand. In fact, demand was so high that Arm’s stock was oversubscribed more than five times. This IPO is being closely watched, not just by investors, but by the entire tech industry as it serves as a barometer for other tech IPOs.
This is a significant IPO, marking the largest listing since 2021 when electric-truck maker Rivian raised approximately $12 billion. The tech industry, once soaring in valuations during the pandemic, has seen a decline in recent months due to economic uncertainties and rising interest rates.
For SoftBank, this IPO is expected to bring in about $4.9 billion as they offer 9.4% of the company’s stock. Despite this, SoftBank will still maintain control over roughly 90% of Arm’s shares post-IPO.
In terms of market capitalization, as of the start of trading on Thursday, Arm will be valued at $52.3 billion, based on the number of shares available after the IPO. However, if all stock options and other rights are exercised, the value will rise to $54.5 billion on a fully diluted basis.
Notably, major tech players, including Apple, Google, Nvidia, Samsung, Intel, and TSMC, have expressed interest in purchasing $735 million worth of Arm shares at the IPO price.
The consortium of banks underwriting the listing closed orders for shares a day earlier than planned, underscoring the tremendous demand for Arm’s stock. Among the 28 banks participating in the Arm IPO are heavyweights like Goldman Sachs, JPMorgan, and BofA Securities.
The high demand for Arm’s IPO is significant as it represents a resurgence of interest in tech listings in the US following a relatively quiet year. Instacart, an e-commerce company, and marketing automation firm Klaviyo have also recently announced their IPO pricing.
While the IPO is generating considerable excitement, it’s worth noting that Arm’s IPO price is below the $64 billion valuation implied in a transaction with SoftBank’s Vision Fund just a month ago. SoftBank had initially hoped to value Arm at $70 billion, but concerns have arisen due to flat sales in the past financial year, a drop in recent quarterly profits, and exposure to various risks, particularly in China.
Arm’s core market, smartphone chips, has experienced stagnation this year. However, the company is banking on growth opportunities in artificial intelligence and data centers, despite playing a peripheral role in the technology that powers large language models like ChatGPT. This strategic shift reflects Arm’s adaptability in the ever-evolving tech landscape.
In conclusion, Arm’s IPO is a bellwether for the tech industry, showcasing strong demand and indicating a potential resurgence of tech listings in the US. However, challenges, including geopolitical tensions, US sanctions, trade restrictions, and economic uncertainties, continue to loom, making it an IPO worth watching for investors and tech enthusiasts alike.
By: M Z Hossain, Digital Journalist
