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SoftBank’s Arm Soars 10% in Nasdaq Debut, Achieving a Staggering $60 Billion Valuation

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In a spectacular Nasdaq debut on Thursday, SoftBank’s Arm Holdings (ARM.O) saw its shares surge 10% above their initial offer price, propelling the chip design giant to a staggering valuation of nearly $60 billion. This triumphant return to the public markets after seven years marks a significant milestone for Arm, signaling a resurgence in the IPO arena.

Opening with a Bang

The market buzzed with excitement as Arm’s stock opened at $56.1 per American Depositary Share, surpassing the initial public offering (IPO) price of $51. It continued to climb steadily, eventually reaching the coveted $60 mark. This bullish performance sent ripples of confidence through the industry, raising hopes for other companies preparing to go public.

A Positive Outlook

Owen Lau, a senior analyst at Oppenheimer & Co., weighed in on the situation, stating, “This pop can get people more excited about the IPO market for the rest of this year and going into 2024.” The Arm IPO has drawn immense attention, with Kyle Rodda, senior market analyst at Capital.com, noting, “It will also be a major test of risk appetite and whether these high-growth, speculative companies still attract interest in a new world of higher interest rates.”

SoftBank’s Strategic Move

Arm had initially secured a valuation of $54.5 billion when pricing its IPO at the top end of the range. This move resulted in SoftBank pocketing a substantial $4.87 billion while retaining a commanding 90.6% stake in Arm. The journey leading up to this IPO was filled with twists and turns.

A Journey to Public Listing

The chip designer was taken private in 2016 when SoftBank acquired it for $32 billion. However, SoftBank’s plans to cash out some of its stake through a $40 billion deal with chipmaker Nvidia (NVDA.O) were thwarted by regulatory hurdles, forcing a change of strategy. Despite a campaign for a London listing by the British government, Arm ultimately returned to the public markets.

SoftBank’s Unwavering Confidence

Arm’s value may have dipped slightly since SoftBank’s Vision Fund unit acquired the remaining 25% stake last month, valuing Arm at $64 billion. However, SoftBank CEO Masayoshi Son remains optimistic. According to Arm’s CFO Jason Child, “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.”

A Promising Future

Arm recently disclosed a 1% drop in annual revenue but expressed confidence in increasing it. This optimism is driven by Arm’s ability to generate a 5% royalty rate on chips utilizing the latest technology, compared to 3% for the previous version. High-end smartphones are increasingly adopting Arm’s cutting-edge technology.

Shifting Investor Focus

In the wake of a record year for deals in 2021, investors have started prioritizing profitability, turning away from cash-burning startups. Notably, the ten largest U.S. IPOs of the past four years have seen an average decline of 47% from their closing price on the first day of trading, based on LSEG data. Those who bought during intra-day price surges faced even steeper losses, with an average drop of 53%.

China’s Influence

Arm has firmly established itself as a linchpin in the tech hardware ecosystem, powering smartphones worldwide, including Apple’s iPhones and Samsung’s Android-based devices. However, a significant portion of Arm’s revenue hinges on an entity beyond its control, heavily reliant on access to China’s massive smartphone market. Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented, “Despite some concerns about its exposure to numerous risks in China, it’s not stopped a juggernaut of enthusiasm, with the IPO oversubscribed multiple times.”

Nasdaq’s Win

Arm’s debut on Nasdaq (NDAQ.O) not only solidifies its position in the market but also presents Nasdaq with the potential for increased revenue growth. Large deals like Arm’s listing bring short-term publicity and a long-term opportunity to boost recurring revenue from annual listing fees. Andrew Bond, managing director and senior fintech analyst at Rosenblatt Securities, highlighted the benefits, stating, “Anytime Nasdaq gets a new listed company, it’s able to drive revenue not just through the listing but also through the other services it sells to these listed companies on their exchange.” In conclusion, SoftBank’s Arm has made a resounding comeback in its Nasdaq debut, defying expectations and achieving an impressive $60 billion valuation. This triumph not only rejuvenates the IPO landscape but also underscores Arm’s significance in the ever-evolving tech industry. With its strategic positioning and unwavering confidence, Arm is poised for a promising future.

FAQs

1. What is the significance of Arm’s Nasdaq debut?

Arm’s Nasdaq debut is significant as it marks the chip designer’s return to the public markets after seven years and highlights a resurgence in the IPO market.

2. How did Arm perform on its first day of trading?

Arm’s stock opened 10% above its IPO price, reaching a valuation of nearly $60 billion, signaling strong investor confidence.

3. What challenges did SoftBank face in its attempts to cash out its stake in Arm?

SoftBank initially attempted to cash out its stake in Arm through a $40 billion deal with chipmaker Nvidia, but regulatory obstacles forced a change in strategy.

4. What factors are driving Arm’s optimism about increasing its sales?

Arm anticipates increasing its sales by capitalizing on a 5% royalty rate for chips using the latest technology, which is higher than the previous version’s 3%.

5. How does Arm’s reliance on China’s smartphone market impact its revenue?

A significant portion of Arm’s revenue depends on China’s smartphone market, posing risks and opportunities for the company.

6. What benefits does Arm’s debut on Nasdaq bring to the exchange?

Arm’s listing on Nasdaq provides both short-term publicity and long-term revenue growth potential through recurring listing fees.
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