SoftBank-owned chip design firm, Arm Holdings, witnessed an impressive 25% hike in its share prices on its debut trading day after its initial public offering was priced at $51 per share.
Upon opening, Arm's valuation soared to a near $60 billion. Trading with the “ARM” ticker symbol, the firm offloaded approximately 95.5 million shares. Notably, 90% of the company's outstanding shares remain under SoftBank’s purview, which had privatized the firm in 2016.
Shares were priced at the top-end of Arm’s expected bracket on Wednesday. They commenced trading at $56.10 on Thursday, finally closing at $63.59.
The valuation of $60 billion assigns a hefty premium to the UK-based chip firm. With this valuation, Arm's price-to-earnings ratio surpasses 110 based on profits from the most recent fiscal year. This is analogous to Nvidia’s metrics, although Nvidia has a whopping 170% growth projection for the upcoming quarter.
In conversation with CNBC, Arm's CFO, Jason Child, emphasized the company's thrust on royalty growth and delivering enhanced, cost-effective products to clients.
A significant portion of Arm's royalties can be attributed to legacy products. Circa 50% of the firm's 2022 royalty revenue, amounting to $1.68 billion, came from offerings introduced between 1990 and 2012. Drawing an analogy, Child remarked, "Older products are like the Beatles catalog, continuously generating royalties, even if they're three decades old."
Forecasts presented to investors suggest Arm anticipates its chip design market value to reach $250 billion by 2025, factoring in the growth potential in data centers and automotive chips. Despite a slight dip in revenue to $2.68 billion for the fiscal year concluding in March, Arm remains influential with its architecture fundamental to most smartphone chips.
Child disclosed the sale of shares worth $735 million to strategic investors including tech giants like Apple, Google, Nvidia, and Samsung, among others. This underscores Arm’s pivotal role in the chip design industry. "There was greater demand, but our aim was to ensure a broad spectrum of shareholders," Child expressed.
Masayoshi Son, SoftBank's CEO, highlighted Arm's significance in AI chip technology in a chat with CNBC, underscoring the company's alignment with the surging AI and machine learning trends.
This robust market debut may potentially reignite the technology IPO sector, dormant for almost two years. In fact, Arm's offering is touted as 2023's grandest in the tech domain.