Chip designer Arm Holdings garnered a valuation of $54.5 billion in its highly anticipated initial public offering (IPO) on Wednesday. This move comes seven years after its proprietor, SoftBank Group, privatized the company for $32 billion.
The valuation of the Arm Holdings IPO marks a notable deviation from the $64 billion assessment at which SoftBank recently acquired the remaining 25% stake from its managed $100 billion Vision Fund. The company confirmed that shares were priced at $51 each, generating $4.87 billion for SoftBank based on the sale of 95.5 million shares. Trading of these shares is slated to commence on Thursday in New York.
Arm Holdings solidified a roster of major industry players, including Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel, and Samsung Electronics, as cornerstone investors for its IPO. This development is a significant departure from the proposed $40 billion acquisition by Nvidia, which was abandoned last year due to opposition from antitrust regulators.
Emphasizing its potential for expansion beyond the dominant 99% share in the mobile phone market, Arm embarked on its IPO marketing campaign last week. A slowdown in mobile demand during the global economic downturn had resulted in stagnant revenue for Arm, reporting total sales of $2.68 billion in the 12 months ending March, marginally down from the prior period’s $2.7 billion.
During presentations to potential investors in New York, Arm outlined its strategic position in the cloud computing market, where it holds a modest 10% share, indicating substantial room for growth. Projections suggest the cloud computing sector is poised for an annual growth rate of 17% until 2025, partially propelled by advancements in artificial intelligence. Furthermore, the automotive market, where Arm commands a substantial 41% share, is anticipated to expand by 16%, in stark contrast to the modest 6% growth anticipated for the mobile market.
Arm’s revenue stream primarily hinges on royalty fees, a practice it has maintained since the early 1990s. For the latest fiscal year, the company’s royalty revenue surged to $1.68 billion, up from the previous year’s $1.56 billion.
One focal point for investors has been Arm’s exposure to the Chinese market, amid geopolitical tensions with the United States triggering a race to secure chip supplies. Notably, sales in China accounted for 24.5% of Arm’s $2.68 billion revenue in fiscal 2023.
This IPO catapults Arm Holdings into the U.S. market, providing a significant boost to SoftBank Group. The company’s market performance, however, will be closely watched as investors assess its potential trajectory. Should Arm Holdings successfully penetrate the cloud computing sector and further expand its footprint in the automotive and mobile markets, the chip designer could potentially soar to even greater heights in the foreseeable future.