Chip designer ARM’s stock soars 25% in IPO win for owner SoftBank. ARM’s stock still 90% owned by SoftBank, closed at $63.59 in New York trading Thursday, giving it a market value of over $65 billion. The performance of the British chip designer’s ARM’s stocks signals that the IPO market may revive after a very quiet year and this is just the beginning.
ARM’s CEO Rene Haas rings the opening bell, as Softbank’s ARM, a chip design firm, holds an IPO at Nasdaq MarketSite in New York on Thursday. ARM stock price climbed 25% in its trading debut after raising $4.87 billion in the year’s biggest IPO, delivering a boost for both equity markets and SoftBank Group founder Masayoshi Son.
ARM stock had a rocking debut
Around 90% of ARM stock is still owned by SoftBank, closed at $63.59 in New York trading Thursday, giving ARM a market value of more than $65 billion. Including restricted share units, ARM’s fully diluted valuation is closer to $68 billion.
On Wednesday, ARM sold 95.5 million American depositary shares at the top of a marketed range of $47 to $51 each. The ARM stock opened trading Thursday at $56.10 and rose as much as 30%.
ARM stock debut stands as a vindication for Son, SoftBank’s chairman and CEO. In a final meeting Wednesday, some bankers and executives made the case for pricing the shares above the marketed range but Son said it wasn’t worth risking a healthy debut for $100 million or so in additional proceeds, as per report. With Thursday’s ARM stock gains, the value of SoftBank’s stake has increased by about $12 billion.
SoftBank stock at closing
SoftBank’s shares rose as much as 5.1% during early morning trade in Tokyo on Friday, in their biggest intraday gain in three months.
Investors in ARM’s IPO
Investors in the IPO included some of ARM’s biggest customers. The company set aside more than $700 million of its stock for Intel, Apple, Nvidia, Samsung Electronics and Taiwan Semiconductor Manufacturing Co.
ARM’s IPO the largest in U.S.
ARM’s IPO listing is the largest in the U.S. since electric-vehicle manufacturer Rivian Automotive’s $13.7 billion offering in October 2021. The ARM’s IPO is also set to rank among the technology industry’s largest-ever, though still well below the two biggest: Alibaba Group Holding’s $25 billion 2014 offering and 2012’s $16 billion debut by Meta Platforms.
The ARM’s IPO listing surpassed the $4.37 billion raised in May by Johnson & Johnson consumer health spinoff Kenvue to become 2023’s top offering in the U.S.
Catalyst for other companies
ARM’s debut could serve as a catalyst for IPOs from dozens of technology startups and other companies whose plans to go public in the U.S. have been stuck during the deepest, longest listing trough since the financial crisis in 2009.
Online grocery-delivery firm Instacart and marketing and data automation provider Klaviyo are set to price their IPOs next week. Vietnam-based internet startup VNG and footwear-maker Birkenstock Holding are also among those that have also filed to go public.
“This is just the beginning of the cycle and ARM is a great sign of what’s to come,” said Ross Gerber, co-founder and CEO of wealth management firm Gerber Kawasaki. “The pricing is a big part of it, SoftBank was smart to price it where they did because they got a pop and drew investors in.”
Son’s approach to IPO reflects his continuing long bet on ARM, whose chips are found in most of the world’s smartphones. ARM also stands to benefit from the stampede toward artificial intelligence chips and generative AI — an industry shift that has helped give Nvidia a market value of more than $1.1 trillion.
ARM’s past success won’t necessarily carry over into new growth areas, where alternatives to its chips are available and other companies are in control, according to Charles Shi, a Needham & Co. senior research analyst. While ARM can still grow, it won’t be enough to support its valuation in the IPO, wrote Shi, who put a hold rating on the stock.
Chip industry in slump
Meanwhile, the overall chip industry is still contending with a sales slump, worsened by a glut of inventory.
ARM’s revenue fell about 1% to $2.68 billion for the fiscal year ended March 31, according to its filings. The company’s net income, which jumped to $549 million in fiscal year 2022 from $388 million the previous year, fell this year to $524 million.
The company’s shares are trading on the Nasdaq Global Select Market under the symbol ARM.
Barclays, Goldman Sachs Group, JPMorgan Chase & Co. and Mizuho Financial Group led ARM’s offering, in an unusual arrangement with the four serving as equal partners. Raine Securities, which is backed by SoftBank, also acted as financial adviser in connection with the IPO.
A warm welcome for the ARM’s stock would probably mean many more companies going public in the coming months, ending the cold streak.
