Arm Holdings, the renowned CPU specialist, has filed for an initial public offering (IPO) as it aims to capitalize on the growing excitement surrounding artificial intelligence (AI). This comes after its proposed acquisition by Nvidia was halted by regulators in early 2022. Arm’s IPO has the potential to become the biggest of 2023, but investors are advised to approach with caution.
Amid the challenging macroeconomic conditions of the past year, Arm has faced headwinds in returning to growth. While its fiscal year revenue for 2021 declined by 1% to $2.7 billion, its net income also dropped by 5% to $524 million. In contrast, the previous year saw impressive growth with revenue rising by 33% and net income increasing by 42%. The company’s struggle to rebound continues, as evidenced by a 2% decline in revenue to $675 million and a 53% decrease in net income to $105 million for the quarter ending June 30.
Despite these challenges, Arm is determined to make a grand return to the public markets. Having been taken private by Softbank Group for $32 billion in 2016, Arm now seeks to capitalize on its investment. The company plans to issue 95.5 million American depositary shares with an expected price range of $47 to $51, potentially valuing Arm Holdings between $48 billion and $52 billion. Although this falls short of Nvidia’s valuation, Arm still aims to secure a significant premium. The company hopes to achieve a valuation between 92 and 99 times its trailing-12-month earnings.
While Arm’s IPO ambitions suggest confidence in its future, its recent financial performance raises concerns. The company’s CPUs, although pervasive in smartphones and various devices, may not be as integral to AI processing as Nvidia’s graphics processing units (GPUs). Arm’s chips are known for their power efficiency, positioning the company as a provider of technology for integration into other chipmakers’ products. Although notable tech companies such as Advanced Micro Devices, Apple, Google, Intel, and Nvidia have expressed interest in purchasing Arm shares, there is no guarantee that they will follow through.
Individual investors should exercise caution when considering Arm’s IPO, even though it may attract high demand. With tepid financial results and an ambitious valuation, the price may be steep for some. While Arm seeks to ride the wave of AI excitement, it remains to be seen whether it can fully tap into the growing demand for AI processors.
