It's widely known that Arm has been the center of attention recently, with traders, investors, and analysts eagerly anticipating its reentry into the stock market today, on Thursday, September 14th, through its IPO.
Interestingly, this IPO has garnered the interest of not just ordinary investors and traders but has also captured the attention of tech giants such as AMD (AMD), Apple (APPL), NVIDIA (NVDA), Intel (INTC), and Alphabet (GOOG). On Tuesday, one of the largest contract chip manufacturers globally, Taiwan Semiconductor Manufacturing Corporation (TSMC), even revealed plans to invest as much as $100 billion in Arm's IPO. TSMC Chairman Mark Liu stated that "Arm is an important element of our ecosystem, our technology, and our customers’ ecosystem. We want it to be successful, we want it to be healthy.”
But what's causing all this excitement, and what should you expect from Arm's comeback to the stock market today? Here's what you need to know about Arm's IPO:
What Is Arm Holdings?
Arm Holdings (Arm) is a British company that specializes in software and semiconductor design. The company is headquartered in Cambridge, England, and is owned by the Japanese company, Softbank (9984.TY).
Arm is famous for its processor architecture and physical Internet protocol (IP). In addition, the company offers development tools for sale and licensing directly to system companies, and it extends support services to its licensees, as well as system companies and other designers in the field. Furthermore, Arm’s energy-efficient processors and software have played a pivotal role in facilitating advanced computing in over 250 billion chips.
Finally, it may be interesting to note that Arm’s services are primarily offered in Europe, the United States, and the Asia Pacific and are structured into three divisions: the Processor Division (PD), the Physical IP Division (PIPD), and the Systems Design Division (SDD).
Could Arm's Share Price Be Too High?
On Wednesday, September 13th, Arm revealed its US IPO pricing at $51 per share. The price was well above the expectations. Accordingly, the IPO price gave Arm a whopping valuation of about $54.5 billion as higher demand materialized.
As a result, many deem this to be 2023’s biggest IPO which could also provide a much-needed boost to the equity markets.
When Will You Be Able to Trade Arm Shares?
Traders and investors will be able to trade Arm shares today, Thursday, September 14th. The shares will be available on the Nasdaq Global Select Market under the “ARM” symbol. Plus500 will also offer Arm (ARM) CFDs on its trading platform.
What Will Happen After the IPO?
While the IPO helped Arm raise $4.87 Billion, the company initially set a goal of $8 billion to $10 billion, but this target was subsequently reduced, partly due to SoftBank's decision to purchase approximately 25% of its stake from the Vision Fund and retain a larger portion of the company's shares.
Moreover, according to Arm’s filings with the US Securities and Exchange Commission, following the IPO, SoftBank would maintain control of approximately 90% of the company's shares. (Source:Bloomberg)
What Do Analysts and Market Participants Think?
While many believe that this IPO could provide a helpful boost to the equity markets, some experts like David Trainer, the CEO of New Constructs, an Artificial Intelligence-powered research firm, seem to be bearish on Arm’s IPO.
Trainer believes that “after a nearly two-year drought in the IPO market, SoftBank is wasting no time by offering Arm Holdings to the public markets, and at a valuation that is completely disconnected from the company’s fundamentals.”
He also stated that Arm may have a hard time keeping up with its valuation as its valuation “implies that the company needs to grow its revenue by over 20% compounded annually every year for the next decade, which is a highly unlikely scenario."
Trainer also mentions that Arm has to face multiple competitors and “many of the competitors have more than enough capital and expertise to build their own custom solutions.” Therefore, it seems that despite sounding promising, Arm has a long way to go and multiple challenges to face.
Another factor that should be considered is the fact that the chip industry as a whole continues to grapple with a sales downturn, exacerbated by an excess of inventory. Furthermore, according to Arm’s financial reports, the company’s revenue declined by approximately 1% to $2.68 billion for the fiscal year ending on March 31.
Still, the market is famous for its volatility and unpredictability, and traders will have to wait and see what will happen following Arm’s return to the market. Furthermore, it seems that Arm is focusing on developing and advancing AI technologies like many of its peers. The company asserts that each processor it creates will enhance the performance of AI and machine learning technologies it supports. As such, this too could have an impact on Arm’s trajectory and future growth prospects.
In conclusion, Arm's initial public offering (IPO) presents potential opportunities for the market. However, it is crucial for traders to remain mindful of various factors and carefully evaluate them before approaching Arm's stock.