Japanese investment group SoftBank’s Arm Holdings ended its Nasdaq debut with a $65 billion valuation, as investors poured dollars into the chip designer amid an artificial intelligence-fuelled rush for chip stocks.
Arm opened for trade at $56.10 on Thursday — slightly above its IPO price of $51 — and ended the day with near 25% gains at $63.59.
The firm secured a valuation of $54.5 billion on Wednesday after pricing its IPO at the top end of the marketed range, netting $4.87 billion for SoftBank, which still holds a 90.6% stake.
Despite its strong showing on Nasdaq, Arm’s debut marks a climb-down from the $64 billion it was valued at last month when SoftBank bought the 25% stake of Arm it did not directly own from its Vision Fund unit.
But that has not dampened SoftBank CEO 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’s the price gonna be in the future.”
SoftBank’s Tokyo-listed shares jumped more than 4% in early trade on the back of Arm’s listing.
‘AI still kicking’
Arm’s strong performance has rekindled hopes that investor demand for initial public offerings, which had been hit hard over the last two years by geopolitical tensions and higher interest rates, may be on the rebound, market participants said.
“It is a successful IPO,” said Salman Malik, partner at Anson Funds in Toronto. “It will have a positive impact on the IPO pipeline and shows the AI theme is alive and kicking.”
SoftBank took Arm private in 2016 for $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 $40 billion deal.
It ended up abandoning that plan, however, due to regulatory roadblocks.
Since then SoftBank has pivoted towards an IPO for Arm, 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.
Arm is indispensable in the tech hardware ecosystem as its chip designs power nearly every smartphone in the world. It disclosed last month that its annual revenue had dropped 1% as its two largest markets – smartphones and personal computers – slumped.
‘Price sensitive’ investors
CFO Child said Arm can still boost sales as it was reaping a 5% royalty rate on chips made with the newest technology versus 3% with the previous version. Premium phones are more likely to use Arm’s most advanced technology.
Some bankers say the closest valuation comparison to Arm is circuit designer Cadence Design Systems. Cadence trades at 35 times of 2025 earnings, while Arm at $51 per share trades at 29 times earnings.
“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,” Jordan Stuart, a portfolio manager at Federated Hermes, said.
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, 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, with additional editing by Vishakha Saxena