SoftBank’s Arm shares post third daily loss with IPO buzz fizzling, short-sellers hovering

NEW YORK – Shares of Arm Holdings closed down 4.9 per cent on Tuesday, in their third daily decline out of the stock’s first four sessions as a listed company, as investor interest faded in the

biggest initial public offering (IPO) of the year so far.

With short-sellers looking to profit from the stock, it closed at US$55.17 after touching a high of US$69 on Friday.

The chip designer, in which SoftBank holds a roughly 90 per cent stake, closed at US$63.59 on Thursday, which is still almost 25 per cent higher than its IPO price of US$51.

Arm shares underperformed the Philadelphia semiconductor index, which closed down 0.96 per cent on Tuesday as rising bond yields weighed on growth sectors such as technology.

Investors were also monitoring grocery delivery service Instacart, another high-profile IPO, which ended its debut session at US$33.70, roughly 12 per cent above its US$30 IPO price.

While bullish investors are pinning their hopes for the stock on demand tied to a surge in interest in artificial intelligence (AI), Mr Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, said he needed more proof.

“People are sobering up a little bit from the initial excitement,” said Mr Morgan, whose company holds shares in Nvidia but has not invested in Arm.

“My biggest concern is valuation and the fact that everyone is buying Arm because it’s a huge AI play in the eyes of investors. It does benefit from AI, but it’s not Nvidia,” said the money manager.

“We don’t have any direct evidence at this point that Arm has been directly, positively impacted by AI like we have from Nvidia.”

Data from analytics company Ortex on Tuesday suggested that short-sellers had started taking bets against Arm stock, with slightly more than five million shares of the newly listed chip designer “on loan”, or 2.7 per cent of the stock’s free float.

Short-sellers need to borrow a stock to short it, and the relationship between shares on loan and shorted is normally quite close, according to Ortex.

Analysts from Bernstein and Needham in recent days had published less than optimistic notes about the chip technology company and options on the stock starting trading on Monday at a brisk pace, with many investors positioning for further downside.

Late on Monday, Arm announced that its underwriters had exercised their full over-allotment option to buy an additional seven million American depository shares, boosting the total raised from the IPO to approximately US$5.2 billion (S$7 billion).

Another IPO on the cards is marketing automation company Klaviyo, which is considering pricing its offering at the top of its indicated price range or just above it, according to sources. That IPO is expected to be priced on Thursday evening. REUTERS