Arm Shares Soar 25% in IPO Debut

Introduction

Chip designer Arm saw its shares skyrocket after its initial public offering (IPO) on Thursday. Arm stock rose nearly 25% in its first day of trading.

Arm IPO Details

• Arm priced 95.5 million shares at $51 apiece, which was the high end of its expected range of $45 to $51.
• The IPO raised nearly $5 billion for majority owner SoftBank, which still owns 90% of Arm stock.

Market Performance

On the stock market today, Arm stock jumped 24.7% to close at $63.59.

Questionable Valuation

Market watchers questioned Arm’s initial valuation, noting that it is 36% higher than what Nvidia had offered to pay for the company last year.

“It’s hard to convince the market to pay such huge premiums when you’re not growing as a company,” said Daniel Newman, chief executive of research and advisory firm Futurum Group.

Arm’s Revenue and Business Model

• Arm’s revenue dipped slightly to $2.68 billion in its fiscal 2023 ended March 31, due to weak smartphone sales.
• Arm’s chip designs are used by every major semiconductor designer, including Apple, AMD, Qualcomm, Nvidia, and many more.
• Arm now gets 63% of its revenue from royalties and 37% from licensing.

Arm Stock Valuation ‘Not Based On Fundamentals’

Research firm New Constructs said the Arm stock valuation is “based more on SoftBank’s self-dealing in private markets to manipulate the valuation higher than the fundamentals of the company.”

“We believe investors should avoid this IPO, as we see very limited upside ahead, as there are plenty of other companies in the tech sector that offer investors growth, but at a reasonable valuation,” New Constructs analysts said in a report.

Upcoming Tech IPOs

The Arm stock IPO is the first of a trio of tech IPOs hitting the market this month. Next week, grocery delivery company Instacart and marketing software firm Klaviyo are due to go public.

Conclusion

Arm’s IPO debut was met with strong investor interest, with shares surging 25%. However, some market watchers have raised concerns about the company’s valuation. The IPO raised significant funds for majority owner SoftBank, but analysts question the long-term growth potential of Arm. Investors will be keeping a close eye on upcoming tech IPOs in the coming weeks.

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