NEW YORK: Shares in The arm of SoftBank The holdings rose almost 25% above their level Nasdaq debut price on Thursday, reviving investors’ hopes for a turnaround in the moribund initial public offering (IPO) market.
The stock, which had opened at $56.10, gained 24.68% to close at $63.59, leaving Britain chip designer a valuation of $65 billion upon its return to the public markets after a seven-year absence. The IPO was priced at $51.
Arm’s strong performance suggests that investor demand for IPOs, which has been hit hard by geopolitical tensions and higher interest rates over the past two years, may be recovering, market participants said.
“It’s a successful IPO,” said Salman Malik, partner at Anson Funds in Toronto. “It will have a positive impact on the IPO pipeline and shows that the AI theme is alive and well.”
Several companies will go public in the coming weeks, including grocery delivery service Instacart, German shoe manufacturer Birkenstock and marketing automation platform Klaviyo.
If successful, these IPOs are likely to trigger a wave of IPOs in 2024, bankers and analysts said.
Arm secured a $54.5 billion valuation on Wednesday after valuing its IPO at the high end of the market, raising $4.87 billion for SoftBank, which still has a 90.6% stake.
The Japanese investment giant took Arm private in 2016 for $32 billion. The company has been trying to cash out some of its stake since at least 2020, when it agreed to sell Arm to chipmaker Nvidia in a $40 billion deal. It had to abandon that plan due to regulatory roadblocks.
It has since moved towards an IPO, but that came with its own hurdles, including clashes with the British government as it campaigned to get the chip designer listed in London.
Despite a strong performance on Thursday, Arm’s debut marks a decline from the $64 billion it was valued at last month when SoftBank bought the 25% stake in Arm it didn’t directly own from its Vision Fund unit.
But that hasn’t dampened SoftBank CEO Masayoshi Son’s enthusiasm for Arm, the chip designer’s Chief Financial Officer Jason Child said in an interview Thursday.
“He’s quite optimistic about the company. Today’s price or even in the short term is not really his focus, the focus is where the price will be in the future.”
Arm is indispensable in the technological hardware ecosystem, because its chip designs power almost every smartphone in the world. Last month it announced that annual revenue fell 1% as its two biggest markets – smartphones and personal computers – collapsed.
Child said Arm can still boost sales because it received a 5% royalty rate on chips made with the latest technology, up from 3% with the previous version. Premium phones are more likely to use Arm’s most advanced technology.
The closest valuation to Arm is circuit designer Cadence Design Systems, said some bankers who worked on the IPO. Cadence trades at 35 times 2025 earnings, while Arm trades at $51 per share at 29 times earnings.
‘MODESTY’
Investors have started paying more attention to profitability in the past year, shunning cash-guzzling startups that commanded high valuations in 2021 thanks to a record year for deals.
The 10 largest U.S. IPOs over the past four years have fallen an average of 47% from the closing price on their first day of trading, Friday’s analysis of LSEG data showed.
Investors who bought at the peak of an intraday price surge, which often occurs in high-profile listings, would have done even worse, with an average loss of 53%.
“The price of the deal was within the range, which tells me that investors are price sensitive and that boards and investment banks are showing a bit of humility,” said Jordan Stuart, portfolio manager at Federated Hermes.
While Arm’s strong debut will likely encourage other tech companies to move forward with their IPOs, it likely won’t mean a return to the frothy market of 2021, Stuart said.
Sectors such as biotech are likely to remain dormant for the next one to two years until rates start to fall, making stocks more attractive versus bonds, he said.
“Not only will you see a discernment among investors, but also some sectors will be completely absent from the market until the interest rate regime changes.”
NASDAQ SCORING
Arm’s debut also gives the Nasdaq, which won the listing, a potential boost for future revenue growth.
Big deals like Arm provide the Nasdaq with short-term publicity and are a long-term gamble to increase the recurring revenue the exchange receives from annual listing fees, analysts said.
“Every time Nasdaq gets a new listed company, it can generate revenue not only through the listing, but also through the other services it sells to these listed companies on their exchange,” said Andrew Bond, managing director and senior fintech. analyst at Rosenblatt Securities.
The stock, which had opened at $56.10, gained 24.68% to close at $63.59, leaving Britain chip designer a valuation of $65 billion upon its return to the public markets after a seven-year absence. The IPO was priced at $51.
Arm’s strong performance suggests that investor demand for IPOs, which has been hit hard by geopolitical tensions and higher interest rates over the past two years, may be recovering, market participants said.
“It’s a successful IPO,” said Salman Malik, partner at Anson Funds in Toronto. “It will have a positive impact on the IPO pipeline and shows that the AI theme is alive and well.”
Several companies will go public in the coming weeks, including grocery delivery service Instacart, German shoe manufacturer Birkenstock and marketing automation platform Klaviyo.
If successful, these IPOs are likely to trigger a wave of IPOs in 2024, bankers and analysts said.
Arm secured a $54.5 billion valuation on Wednesday after valuing its IPO at the high end of the market, raising $4.87 billion for SoftBank, which still has a 90.6% stake.
The Japanese investment giant took Arm private in 2016 for $32 billion. The company has been trying to cash out some of its stake since at least 2020, when it agreed to sell Arm to chipmaker Nvidia in a $40 billion deal. It had to abandon that plan due to regulatory roadblocks.
It has since moved towards an IPO, but that came with its own hurdles, including clashes with the British government as it campaigned to get the chip designer listed in London.
Despite a strong performance on Thursday, Arm’s debut marks a decline from the $64 billion it was valued at last month when SoftBank bought the 25% stake in Arm it didn’t directly own from its Vision Fund unit.
But that hasn’t dampened SoftBank CEO Masayoshi Son’s enthusiasm for Arm, the chip designer’s Chief Financial Officer Jason Child said in an interview Thursday.
“He’s quite optimistic about the company. Today’s price or even in the short term is not really his focus, the focus is where the price will be in the future.”
Arm is indispensable in the technological hardware ecosystem, because its chip designs power almost every smartphone in the world. Last month it announced that annual revenue fell 1% as its two biggest markets – smartphones and personal computers – collapsed.
Child said Arm can still boost sales because it received a 5% royalty rate on chips made with the latest technology, up from 3% with the previous version. Premium phones are more likely to use Arm’s most advanced technology.
The closest valuation to Arm is circuit designer Cadence Design Systems, said some bankers who worked on the IPO. Cadence trades at 35 times 2025 earnings, while Arm trades at $51 per share at 29 times earnings.
‘MODESTY’
Investors have started paying more attention to profitability in the past year, shunning cash-guzzling startups that commanded high valuations in 2021 thanks to a record year for deals.
The 10 largest U.S. IPOs over the past four years have fallen an average of 47% from the closing price on their first day of trading, Friday’s analysis of LSEG data showed.
Investors who bought at the peak of an intraday price surge, which often occurs in high-profile listings, would have done even worse, with an average loss of 53%.
“The price of the deal was within the range, which tells me that investors are price sensitive and that boards and investment banks are showing a bit of humility,” said Jordan Stuart, portfolio manager at Federated Hermes.
While Arm’s strong debut will likely encourage other tech companies to move forward with their IPOs, it likely won’t mean a return to the frothy market of 2021, Stuart said.
Sectors such as biotech are likely to remain dormant for the next one to two years until rates start to fall, making stocks more attractive versus bonds, he said.
“Not only will you see a discernment among investors, but also some sectors will be completely absent from the market until the interest rate regime changes.”
NASDAQ SCORING
Arm’s debut also gives the Nasdaq, which won the listing, a potential boost for future revenue growth.
Big deals like Arm provide the Nasdaq with short-term publicity and are a long-term gamble to increase the recurring revenue the exchange receives from annual listing fees, analysts said.
“Every time Nasdaq gets a new listed company, it can generate revenue not only through the listing, but also through the other services it sells to these listed companies on their exchange,” said Andrew Bond, managing director and senior fintech. analyst at Rosenblatt Securities.
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