SoftBank’s Arm soars nearly 25% in market debut to $88.6 billion valuation

NEW YORK - Shares in SoftBank’s Arm Holdings soared almost 25 per cent above their Nasdaq debut price on Thursday, rekindling investor hopes for a turnaround in the moribund market for initial public offerings (IPOs).

The stock, which opened at US$56.10, notched a 24.68 per cent gain to close at US$63.59, giving the British chip designer a valuation of US$65 billion (S$88.6 billion) in its return to public markets following a seven-year absence.

The IPO had priced at US$51.

Arm’s strong performance

suggests that investor demand for IPOs, which has been hit hard over the past two years by geopolitical tensions and higher interest rates, may be on the rebound, market participants said.

“It is a successful IPO,” said Mr Salman Malik, partner at Anson Funds in Toronto. “It will have a positive impact on the IPO pipeline and shows the artificial intelligence theme is alive and kicking.”

Several companies are scheduled to go public in coming weeks, including grocery delivery service Instacart, German footwear maker Birkenstock and marketing automation platform Klaviyo.

If these IPOs succeed, they will likely trigger a wave of stock market launches in 2024, bankers and analysts said.

Arm secured a valuation of US$54.5 billion on Wednesday after pricing its IPO at the top end of the marketed range, netting US$4.87 billion for SoftBank, which still holds a 90.6 per cent stake.

The Japanese investment giant took Arm private in 2016 for US$32 billion.

It has been looking to cash out some of its stake since at least 2020, when it agreed to sell Arm to chipmaker Nvidia in a US$40 billion deal.

It had to abandon that plan due to regulatory roadblocks.

Since then, it has pivoted towards an IPO, though that also came with its own hurdles, including run-ins with the British government, which was campaigning for the chip designer to list in London.

Despite a strong showing on Thursday, Arm’s debut marks a climb-down from the US$64 billion it was valued at in August when SoftBank bought the 25 per cent stake of Arm it did not directly own from its Vision Fund unit.

But that has not dampened SoftBank chief executive’s Masayoshi Son’s enthusiasm for Arm, the chip designer’s chief financial officer Jason Child said in an interview on Thursday.

“He is quite bullish on the company. The price today or even in the near term isn’t really his focus, the focus is where the price is going to be in the future.”

Arm is indispensable in the tech hardware ecosystem, as its chip designs power nearly every smartphone in the world.

It disclosed in August that its annual revenue had dropped 1 per cent as its two largest markets – smartphones and personal computers – slumped.

Mr Child said Arm can still boost sales, as it is reaping a 5 per cent royalty rate on chips made with the newest technology versus 3 per cent with the previous version.

Premium smartphones are more likely to use Arm’s most advanced technology.

The closest valuation comparison to Arm is circuit designer Cadence Design Systems, said some bankers who have worked on the IPO.

Cadence trades at 35 times of 2025 earnings, while Arm at US$51 per share trades at 29 times earnings.

Investors have over the past year begun to pay more attention to profitability, shunning cash-burning start-ups that had in 2021 fetched lofty valuations on the back of a record year for deals.

The 10 biggest United States IPOs of the past four years are down an average of 47 per cent from the closing price on their first day of trading, analysis of LSEG data as at Friday showed.

Federated Hermes portfolio manager Jordan Stuart said: “The deal was priced within its range, which tells me that investors are price sensitive and boards and investment banks are showing a little bit of humility.”

While Arm’s strong debut will likely encourage other technology companies to move forward with their IPOs, it does not likely signal a return to the frothy market of 2021, Mr Stuart said.

Sectors such as biotech will likely remain dormant for the next one to two years until interest rates begin to fall, making stocks more attractive relative to bonds, he said.

“You will see not only a discernment among investors, but some sectors completely absent from the market until the rate regime changes.” REUTERS