Arm Holdings, the British chip designer, has successfully raised $5 billion in its initial public offering (IPO), valuing the company at over $54 billion. The IPO saw Arm’s shares priced at $51, the top end of the expected range, and trading is set to begin during the US cash session. This IPO is expected to serve as a barometer for initial public tech offerings in an uncertain market.
The underwriters, which include Barclays, Goldman Sachs, JP Morgan, and Mizuho Securities USA, believe that leaving an additional $1 per share on the table could yield a bigger pop when the stock debuts on Nasdaq. They project that the stock could trade between $57 and $62 based on feedback from investors.
The overwhelming demand for Arm’s IPO is evident as the deal was more than 12 times oversubscribed. This IPO is the largest since electric truck maker Rivian debuted on the public markets in 2021 during the pandemic.
While the $54 billion valuation is 70% higher than what SoftBank paid for Arm in 2016, it is significantly less than the $64 billion valuation SoftBank paid just a month ago to purchase a quarter of the company’s shares from the Vision Fund.
Arm, which supplies chip makers with essential circuit designs, has been a dominant supplier in the handheld phone industry for the past three decades. However, the company is now betting on artificial intelligence and data centers due to the slowdown in the global smartphone industry.
In its prospectus, Arm stated that its revenue in the fiscal year ending in March slipped less than 1% from the prior year to $2.68 billion. Net income in fiscal 2023 also dropped 22% to $524 million.
With a P/E multiple of about 104 based on the latest fiscal year’s profit, Arm’s valuation is just slightly below the exorbitant 108x multiple that Nvidia carries. Nvidia’s forecasted revenue growth of 170% for the current quarter, driven by AI chips, has led to its high valuation.
The success of Arm’s IPO will serve as an indicator of the overall health of the market. Market watchers will closely observe the trading of Arm’s shares to gauge investor sentiment and assess the state of the tech IPO space, which has experienced a slowdown due to soaring interest rates and inflation.
In conclusion, Arm Holdings has raised $5 billion through its highly oversubscribed IPO, valuing the company at over $54 billion. The strong trading expected on the stock’s debut will be a significant indicator for the tech IPO market, especially after a period of uncertainty and market volatility. Arm’s transition to focusing on artificial intelligence and data centers positions the company for future growth and potential success.
