April 23, 2024

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Yesterday we reported that UK chip design company Arm was valued at just above $50bn before going public on the Nasdaq stock exchange. At the end of the day, the share price had jumped by close to 25% above the debut price. It rose from $56.10 to $63.59 — much higher than the $51 presented on Wednesday. 

This made it the largest public listing in the US in nearly two years. The significant jump in share price could be attributed to the fact that the IPO was oversubscribed by up to 10 times. As a result, banks had closed their order books one day early on Tuesday. 

Arm doesn’t produce or sell actual computer chips. Rather, it designs their blueprints and then sells those along with the intellectual property and instruction sets. This approach has earned it a unique and essential role in the semiconductor supply chain. Strategic investors in the IPO include some of Arm’s biggest customers — Nvidia, Intel, Apple, Samsung, and TSMC. 

According to Bloomberg, in a final push before trading commenced, some bankers wanted to price the share above marketed range. However, SoftBank chairman and CEO Masayoshi held his ground, stating it wasn’t worth risking a healthy debut for $100mn or so in additional proceeds. It turned out to be a successful strategy — Thursday’s IPO raised $4.87bn for SoftBank, which shelled out $32bn when it first bought Cambridge-based Arm in 2016.

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The upped valuation is in line with an internal transaction last month. This saw the Japanese conglomerate buy back 25% of the company from Saudi-backed investment vehicle Vision Fund (managed by SoftBank itself). Vision Fund lost a staggering $30bn last year after betting on an array of unsuccessful startups. It laid off dozens of employees as a result, but managed to turn a profit again last quarter, due to a rally in tech stock performance. 

Having firmly established itself as an essential part of the smartphone value chain, Arm will now look to grow, and potentially make itself equally indispensable, in the automotive, data centre, and AI sectors. With these markets’ seemingly insatiable appetite for chips, it would appear the sky’s the limit for those who found themselves with newly offered Arm shares. 

That being said, potential clouds of concern could be gathering due to its dependence on China (the country accounts for a quarter of Arm’s sales) coupled with tension in trade relations and export restrictions. Furthermore, it will have to contend with the rising challenge from open source instruction set architecture RISC-V. Time will tell.

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