Arm Holdings’ much-anticipated initial public offering is set to be the biggest IPO since electric-vehicle maker Rivian Automotive went public in 2021, raising $11.9 billion. So what should investors expect?
The Arm IPO is set to be massive, with the offering valuing the company at more than $50 billion on a fully diluted basis. Arm priced its offering at $51 a share late Wednesday, raising $4.87 billion and putting the company at a $55.5 billion valuation. Arm’s previously stated targeted range was $47 to $51.
The chip designer, which was founded in 1990, has been firmly in the spotlight for decades. With a list of partners that reads like a who’s who of global tech heavyweights, Arm has fueled the mobile-device revolution with its designs. The U.K.-based company is also a key player in the transition to artificial intelligence.
Related: Arm prices IPO at high end of range, raising $4.87 billion
“It’s easy to get caught up in the hype of an IPO — especially when a company of this size goes public in a sector that is trendy,” Jeff Zell, senior research analyst at IPO Boutique, told MarketWatch. “Because there has been such a limited amount of IPOs over the last two years, there could be an even added buzz from Arm.”
In a filing with the Securities and Exchange Commission last month, Arm cited a host of tech giants, including Apple Inc.
Advanced Micro Devices Inc.
Samsung Electronics Co.
and Alphabet Inc.’s
Google International LLC as “cornerstone investors” in the IPO.
“After such a hiatus in the IPO market, ‘walking before we run’ is a prudent strategy,” Zell told MarketWatch. “Arm Holdings has been able to secure critical cornerstone investors and has continued strong momentum with key investors during the roadshow — all critical ingredients to a successful IPO.”
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The analyst noted that for the IPO market to be truly healthy, an IPO like Arm’s needs to trade well not only on its first day, but in its first few quarters. “From a valuation perspective, IPO investors can digest the story and have shown an eagerness to be involved,” he said. “We believe an outcome above the prevailing $47-$51 range is not only possible but likely. With this continued strength, we see a strong first-day performance from Arm Holdings as a likely result.”
But the Arm IPO has also generated some skepticism, with independent equity research firm New Constructs warning this week that the valuation is disconnected from the chip giant’s fundamentals.
David Morrison, senior market analyst at Trade Nation, also urged retail investors to exercise caution. “Often the hype surrounding a new issue leads to wild price swings, particularly on the first couple of days trading. This leads to the danger of paying too much for the stock. Far better to wait for the initial flurry to die down and then assess investor sentiment,” he told MarketWatch.
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“Bear in mind that the company selling the stock — in Arm’s case, Japanese investment bank Softbank
— has its own specific reasons for selling,” Morrison added. “One of these is to raise money following [Softbank’s] disastrous investment in WeWork and others.”
Last month, beleaguered office-sharing company WeWork Inc.
flagged “substantial doubt” about its ability to stay in business. The company’s survival depends on the successful execution of a plan to improve liquidity and profitability over the next 12 months, it said. Earlier this month, WeWork announced that it is renegotiating all its global leases in an attempt to rein in costs.
Trade Nation’s Morrison also highlighted current market conditions. “Sure, the Nasdaq 100 is up 47% since its October 2022 low, but U.S. interest rates are at their highest level since 2001,” he said. “In addition, if history provides us with any lesson, the Federal Reserve is only likely to start cutting rates once unemployment skyrockets, or once we’re in the depths of a recession.”
Related: Investors should avoid Arm IPO, New Constructs says
He added: “Perhaps this isn’t the best time to take out large bets on a chip designer — note: not a manufacturer like Nvidia
— heavily reliant on intellectual property.”
Wallace Witkowski, Emily Bary and Ciara Linnane contributed.