By Manya Saini, Niket Nishant and Echo Wang
(RockedBuzz via Reuters) – Shares of SoftBank’s Arm Holdings rose nearly 25% from their debut price on the Nasdaq on Thursday, reviving investors’ hopes of a turnaround in the moribund initial public offering (IPO) market.
The stock, which had opened at $56.10, posted a 24.68% gain to close at $63.59, giving the British chip designer a valuation of $65 billion upon its return to public markets after a absence of seven years. The IPO price was $51.
Arm’s strong performance suggests that investor demand for initial public offerings, which has been hit hard over the past two years by geopolitical tensions and higher interest rates, 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 demonstrate that the AI theme is alive and well.”
Several companies are expected to go public in the coming weeks, including grocery delivery service Instacart, German footwear maker Birkenstock and marketing automation platform Klaviyo.
If these IPOs are successful, they will likely unleash a wave of stock market launches in 2024, bankers and analysts said.
Arm secured a $54.5 billion valuation on Wednesday after pricing its IPO at the high end of the marketed range, bringing in $4.87 billion to SoftBank, which still holds a 90.6% stake.
The Japanese investment giant took Arm private in 2016 for $32 billion. It 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 hurdles.
It has since moved towards an IPO, although that too has come with its hurdles, including clashes with the British government which was campaigning for the chip designer to list in London.
Despite Thursday’s positive results, 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 own directly from its Vision Fund unit.
But that hasn’t dampened SoftBank CEO Masayoshi Son’s enthusiasm for Arm, Jason Child, the chip designer’s chief financial officer, said in an interview Thursday.
“He’s quite optimistic about the company. The current price or even in the near term is not really his focus, the focus is where the price will be in the future.”
Arm is indispensable in the tech hardware ecosystem as its chips power almost all smartphones in the world. Last month it revealed that its annual revenue had fallen 1% due to the collapse of its two largest markets, smartphones and personal computers.
Child said Arm can still boost sales because it gets a 5% royalty rate on chips made with the latest technology compared to 3% for the older version. Premium phones are more likely to use Arm’s more advanced technology.
The closest valuation comparison to Arm is circuit designer Cadence Design Systems, some bankers who worked on the IPO said. Cadence trades at 35 times 2025 earnings, while Arm at $51 per share trades at 29 times earnings.
‘HUMILITY’
Over the past year, investors have started paying more attention to profitability, shunning cash-burning startups that had commanded lofty valuations in 2021 on the back of a record year for operations.
The 10 largest U.S. IPOs over the past four years fell an average of 47% from their closing price on their first day of trading, analysis of LSEG data on Friday showed.
Investors who bought at the peak of an intraday price surge that often occurs in high-profile listings would have fared even worse, with an average loss of 53%.
“The deal was priced within its range, which tells me that investors are price sensitive and that boards and investment banks are showing some humility,” said Jordan Stuart, manager of Federated Hermes wallet.
While Arm’s strong debut will likely encourage other tech companies to move forward with their IPOs, it likely won’t signal a return to the frothy market of 2021, Stuart said.
Sectors such as biotech will likely remain dormant for the next year or two until interest rates start to fall, making stocks more attractive than bonds, he said.
“You will see not only discernment among investors but also some sectors completely absent from the market until the rate regime changes.”
NASDAQ SCORES
Arm’s debut also gives Nasdaq, which won the listing, a potential boost to future revenue growth.
Big deals like Arm provide Nasdaq with short-term publicity and represent a long-term bet to boost the recurring revenue the exchange collects from annual listing fees, analysts said.
“Every time (Nasdaq) gets a new company listed, they are able to generate revenue not only through the listing, but also through the other services that they sell to these companies listed on their exchange,” said Andrew Bond, chief executive officer and senior fintech analyst, at Rosenblatt Securities.
(Reporting by Echo Wang and Laura Mathews in New York, Stephen Nellis in San Francisco, Manya Saini and Niket Nishant in Bengaluru; Additional reporting by Medha Singh, Carolina Mandl, Chibuike Oguh, Anirban Sen, David Randall and Akash Sriram; Arun Koyyur, Michelle Price, Richard Chang and Ira Iosebashvili)
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