Arm, a British tech giant, reaches a $65 billion valuation on its first day of trading.

Arm, a British tech giant, reaches a $65 billion valuation on its first day of trading.

Arm’s Successful IPO Sends Share Price Soaring

Yesterday, the UK chip design company Arm made its highly anticipated debut on the Nasdaq stock exchange. With an initial valuation of just above $50 billion, it quickly became the largest public listing in the US in nearly two years. The share price saw an impressive jump of close to 25% above the debut price, rising from $56.10 to $63.59, far surpassing the $51 initially presented just a day before¹.

The significant surge in the share price can be attributed to the overwhelming demand from investors. The IPO was oversubscribed by up to 10 times, leading banks to close their order books one day earlier than expected. This level of interest and enthusiasm from investors highlights Arm’s unique and essential role in the semiconductor supply chain².

Unlike traditional chip manufacturers, Arm does not produce or sell physical computer chips. Instead, it focuses on designing the blueprints and intellectual property used in chip manufacturing. This distinctive approach has positioned Arm as a critical player in the industry. Notably, some of Arm’s biggest customers, including Nvidia, Intel, Apple, Samsung, and TSMC, also invested as strategic partners in the IPO³.

Leading up to the IPO, there were discussions among bankers about setting the share price above the marketed range. However, SoftBank chairman and CEO, Masayoshi Son, decided not to take the risk, stating that it wasn’t worth jeopardizing a successful debut for a mere additional $100 million in proceeds. This cautious approach turned out to be the right move as Thursday’s IPO raised an impressive $4.87 billion for SoftBank, which had acquired Arm for $32 billion in 2016⁴.

The increased valuation from the IPO aligns with SoftBank’s recent buyback of 25% of Arm from Saudi-backed investment vehicle Vision Fund. Last year, Vision Fund suffered a significant loss of $30 billion after investing in several unsuccessful startups. To recover, they had to lay off dozens of employees. Fortunately, a strong performance in tech stocks propelled Vision Fund to return to profitability last quarter⁵.

With its established presence in the smartphone value chain, Arm now aims to expand its footprint in other lucrative sectors such as automotive, data centers, and artificial intelligence. These markets have an insatiable appetite for computer chips, indicating vast potential for Arm and its shareholders⁶.

However, there are potential challenges on the horizon. Arm heavily relies on China, which accounts for a quarter of its sales. Tensions in trade relations and export restrictions could impact its operations. Furthermore, Arm faces competition from open-source instruction set architecture RISC-V. Time will tell how these factors will affect the company’s future⁷.

In conclusion, Arm’s highly successful IPO not only generated impressive proceeds for SoftBank but also showcased the strong demand for the company’s unique position in the semiconductor industry. With its strategic partnerships and plans for expansion, Arm is poised for further growth and success. While there are potential challenges to navigate, the future looks promising for this innovative chip design company⁸.

• Deep tech