Shares of Arm shoot up 25% in record-setting London stock launch

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British chip designer Arm Holdings exploded onto Wall Street Thursday with the largest initial public offering (IPO) since 2021, ending the recent IPO drought and potentially spurring a rush of pending tech listings.

Shares of Arm jumped 25% on its first day of trading, opening at $56 per share on the Nasdaq exchange under the ticker “ARM” before closing at $63.59. The strong debut valued the company as high as $65 billion and marked the biggest IPO since electric vehicle maker Rivian’s late last year.

The successful offering ignited a stock market rally, with the Dow surging over 330 points for its best single-day gain since August. Investors celebrated the return of mega IPOs after a nearly two-year lull crippled new listings. Arm’s splashy entrance is expected to pave the way for other tech firms waiting in the wings to move forward with planned IPOs.

“This is a big deal,” said Dave Sekera, chief US market strategist at Morningstar Research Services. “The big takeaway for investors is that if this IPO is successful, that opens the floodgates for a wave of new IPOs. That would provide a positive market sentiment for the overall stock market.”

While not a household name like Intel or Nvidia, Arm’s technology powers billions of smartphones, laptops, cars and other devices. The British company licenses semiconductor designs and architectures to major chipmakers, making it a crucial behind-the-scenes player powering the electronics industry.

SoftBank Group Corp, which acquired Arm in 2016 for $32 billion, retains majority ownership but sold off a 25% slice of its stake in the IPO. The offering raised nearly $3.4 billion for SoftBank while the surging stock price handed Arm an initial market cap around $65 billion.

“We’re very happy about today,” said Arm CEO Rene Haas. “It’s a great day for the company…Our bankers say if you can price at the high end of the range and go out above that number, it’s a good thing. That’s where we ended up and we couldn’t be more pleased.”

IPO Pipeline Unclogs After Months in Deep Freeze

Arm’s banner first trading day thawed the frozen IPO market after recessionary fears and rising interest rates paralyzed new listings in 2022.

The pipeline jammed up last year as volatility spiked and tech valuations sank. IPO activity slowed to a trickle, sinking to lows not seen since the 2008–2009 financial crisis. Promising startups and even mature unicorns hoping to go public stayed stuck on the sidelines.

But demand still simmers for attractive offerings like Arm. Analysts say its successful debut signals sentiment may be warming back up to IPOs, especially for profitable tech companies like Arm with stable cash flows.

Goldman Sachs, the lead underwriter on Arm’s IPO, reported this summer that investment banking revenue tumbled 20% amid the global dealmaking slowdown. But the bank’s shares popped nearly 3% Thursday as markets grew optimistic the IPO freeze may be thawing.

Experts say healthy firms have been biding their time waiting for the uncertainty to clear before launching IPOs. Arm’s home run debut could now open the floodgates for companies hesitant to be first out of the gate.

Major tech players like Intel, Nvidia, Qualcomm and TSMC already indicated interest in investing in the IPO. Apple, Arm’s largest customer, will likely watch its public valuation closely given how much iPhone, iPad and Mac chips depend on Arm’s technology.

“Activity levels in many areas of investment banking hover near decade-long lows, and clients largely maintained a ‘risk off’ posture over the course of the quarter,” said Goldman Sachs CEO David Solomon last quarter when deals evaporated. But the mood shifted Thursday as Arm kicked off its new chapter.

Arm Seeks Expansion Beyond Mobile into PCs, Data Centers, Cars

While Arm only commands about 2% of the overall semiconductor market today, its technology already dominates the mobile landscape powering over 90% of all smartphones globally. Its chip architectures are specifically designed to optimize power efficiency for battery-constrained devices.

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But the company has greater ambitions beyond just smartphones as 5G, artificial intelligence, cloud computing and the Internet of Things create demand for new types of chips. Arm wants to expand into laptops, data centers, autonomous vehicles, smart home gadgets and industrial IoT.

“We are at an inflection point,” said CEO Haas, after Arm reported record revenue for the first half of fiscal 2023, up 35% year-over-year amid strong demand for its new AI and 5G optimized chip technologies.

Specifically, Arm sees a $300 billion opportunity in the laptop market where Intel and AMD hold sway. The company recently unveiled its premium CPU and GPU designs to rival Apple’s own M2 silicon for laptops.

And Arm’s Neoverse platform targets the data center server market dominated by Intel Xeon and AMD Epyc chips. AWS and Fujitsu are already on board as customers. Its robust roadmap across segments underscores why investors value Arm above $65 billion despite less than $3 billion in current annual revenue.

SoftBank Founder Masayoshi Son Acquired Arm for Record Sum in 2016

While Arm only debuted on public markets this week, its origins trace back over 30 years.

The company was founded in 1990 as a joint venture between Apple, VLSI Technology and Acorn Computers. The name “Arm” originally stood for “Acorn RISC Machine.”

Arm pioneered RISC architecture, a novel stripped-down approach to chip design that enabled much greater power efficiency versus traditional CISC chips. This made Arm ideal for mobile and battery-powered devices.

By the 2000s, Arm architecture became dominant as mobile phones displaced PCs. When SoftBank founder Masayoshi Son acquired the company in 2016 for $32 billion, it was the largest-ever purchase of a European tech outfit.

Son predicted correctly that Arm’s energy-efficient designs would thrive as smartphones took over. But by 2020, competitive threats from cloud computing and AI put pressure on Arm, leading SoftBank to plan an IPO to accelerate investment.

Failed Nvidia Deal Revealed Arm’s Critical Market Position

Arm appeared on track to relist publicly via a $40 billion buyout by Nvidia in 2020. But the blockbuster chip deal collapsed in 2022 due to antitrust concerns from regulators fearing harm to competition.

Authorities worried Nvidia controlling Arm would restrict access to its vital architectures and hurt rivals dependent on licensing them. The aborted acquisition underscored Arm’s influential role as a neutral technology supplier to hundreds of companies.

After the Nvidia tie-up crumbled under regulatory opposition, SoftBank pivoted to spinning off Arm through a traditional IPO instead. That allowed Arm to court new investors without competition baggage while SoftBank cashes out.

The IPO path also enables SoftBank to monetize part of its stake while retaining control. Arm’s strong stock pop vindicates Son, who has sought to unlock value from SoftBank’s assets to strengthen its balance sheet.

Geopolitical tensions surrounding advanced chips almost upended Arm’s IPO plans again. But it resolved US security concerns by restructuring its China joint venture, clearing the way for this week’s successful NYSE debut.

Arm Seeks Edge Computing Wins and Automotive Roadmap

Looking ahead, Arm has its sights set on powering technologies like self-driving cars, industrial robots, VR/AR, smart cities and edge computing.

By 2035, Arm predicts over 1 trillion internet-connected devices worldwide as 5G and edge computing spread. Its chips aim to bring cloud-caliber processing directly to devices like cars, phones, and factories.

For example, Arm’s Corstone system-on-chip targets autonomous vehicles, combining real-time processing and analytics needed for self-driving cars. Even as Nvidia leads autonomous vehicle chips today, Arm seeks inroads via partners like Ford’s Argo AI, Toyota and BMW.

And by bringing its architecture to open RISC-V, alongside its proprietary designs, Arm seeks to spur innovation across the semiconductor industry. It offers both licensed and customizable choices for partners.

After powering the mobile era, Arm appears ready for a much wider role fueling the next generation of computing via its triumphant Wall Street debut. As Haas said, for Arm this is just the beginning.

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