Arm, the chip designer owned by SoftBank Group Corp, has seen strong investor demand for its initial public offering (IPO), leading to a valuation of $54.5 billion on a fully diluted basis. Arm received enough backing from investors to secure the top end of its indicated price range, or potentially an even higher price. The IPO is scheduled to start trading in New York on Thursday.
Arm considered publishing a revised, higher price range to reflect the robust investor demand but ultimately decided against it, choosing a more conservative approach to marketing the offering. By pricing the IPO conservatively, Arm aims to increase the chances of strong trading at its debut on Thursday.
This valuation represents a climb-down from the $64 billion valuation at which SoftBank acquired the remaining 25% stake in Arm last month. However, it still represents a better outcome compared to SoftBank’s $40 billion deal to sell Arm to Nvidia Corp, which was abandoned due to antitrust concerns.
Arm has already secured major clients, including Apple, Nvidia, and Alphabet, as cornerstone investors in its IPO. The company aims to convince investors that it has growth potential beyond the mobile phone market, which it currently dominates with a 99% share.
While Arm’s revenue has stagnated due to weak mobile demand amid a global economic slowdown, the company sees opportunities for growth in the cloud computing and automotive markets. Arm holds a 10% share in the cloud computing market, which is expected to grow at an annual rate of 17% through 2025. In the automotive market, where Arm commands a 41% share, growth of 16% is forecasted.
Investors have scrutinized Arm’s exposure to China amidst geopolitical tensions with the United States. Sales in China accounted for 24.5% of Arm’s revenue in fiscal year 2023.
In conclusion, Arm’s IPO has received strong investor demand, leading to a valuation of $54.5 billion. The company has chosen a conservative pricing approach, prioritizing strong trading at its debut. Arm aims to expand beyond the mobile phone market by capitalizing on growth opportunities in the cloud computing and automotive sectors. The company’s exposure to China remains a topic of interest for investors.