In a resounding testament to investor confidence, shares of Arm Holdings, a subsidiary of SoftBank, witnessed a meteoric rise before the bell on Friday following its stellar debut on the Nasdaq. This surge in value has buoyed the U.S. IPO market, which has recently grappled with a dearth of new listings. The British chip designer’s valuation skyrocketed to $65 billion, delivering a much-needed boost to the market.
On Thursday, the stock concluded a remarkable trading day, closing 25% higher than its offer price of $51. Investors’ enthusiasm continued to drive its ascent, pushing its value to $68.44, marking a staggering 34.2% increase. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, commented on the exuberance surrounding the stock, highlighting the persistent appetite for high-growth investments. She also noted growing optimism that the IPO market is poised for increased vitality in the coming year.
Analysts anticipate heightened trading volatility for Arm Holdings, particularly if it garners more attention from AI-focused retail investors. This potential volatility stems from the limited number of publicly traded shares, as SoftBank maintains a substantial 90% stake in the company. During its IPO marketing efforts in New York, Arm Holdings had emphasized the cloud computing market as a potential growth avenue, as it currently commands a 10% share in a segment projected to expand at an impressive annual rate of 17% through 2025, largely driven by advancements in AI.
Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors, noted, “Arm generates very high-margin revenue, but much of that is reinvested into research and development.” Analysts see Arm as well-positioned to capitalize on the AI boom, possibly following in the footsteps of Nvidia, the biggest beneficiary of the AI surge. This is due to the demand for energy-efficient central processing units (CPUs), a specialty of Arm Holdings. According to LSEG data, as of Thursday’s close, Arm had a price-to-earnings ratio based on the last 12 months of 163, in contrast to Nvidia’s 110.
Lund-Yates highlighted that the timing of the IPO was a clear indication of SoftBank’s intent to leverage the AI wave, given its 90% ownership stake in Arm Holdings. Leading up to the IPO, financial disclosures indicated a slight decline in Arm’s full-year sales, reflecting a broader slump in global smartphone demand. Nonetheless, the triumphant Nasdaq debut of Arm Holdings signifies a strong appetite for high-growth stocks in the U.S., offering promising prospects as it ventures further into AI and cloud-based computing. However, potential volatility looms on the horizon due to the limited availability of publicly traded shares.
In summary, the Nasdaq debut of Arm Holdings has been nothing short of spectacular, signaling a revival in the U.S. IPO market. With its strategic focus on AI and cloud-based computing, Arm appears well-positioned for future success, though challenges may arise from the limited availability of public shares. Investors and analysts alike will be closely watching as this British chip designer continues its journey in the rapidly evolving tech landscape.