SoftBank Group’s chip designing subsidiary, Arm, is gearing up for a significant move as it prepares to file for an initial public offering (IPO) on the Nasdaq on Monday. The impending IPO of Softbank has ignited a crucial inquiry among investors: can Arm truly achieve “exponential growth” in the wake of the artificial intelligence (AI) surge, as asserted by CEO Masayoshi Son? This question looms large as the AI boom continues to reshape industries.
Since SoftBank’s acquisition of Arm in 2016, CEO Masayoshi Son has strategically positioned the chip designer as a prized possession within the conglomerate’s portfolio. In recent times, Son has intriguingly proposed that Arm could play a pivotal role in the AI revolution. In an address to investors in June, he unveiled his vision that Arm “is at the center of a group of AI-related companies to generate synergies,” revealing that “85% of SoftBank Group assets are AI-related companies overseas.” However, while this vision is enticing, investors are in search of more tangible details before committing their resources.
Son’s bold promises of numerous AI-powered innovations, including the realization of AI-driven ChatGPT technology through Arm’s capabilities, have captured attention. Yet, there remains a void in the specifics required to substantiate these claims. Consequently, the investment community’s attention is firmly fixed on the forthcoming Nasdaq filing for the concrete elucidation that will determine the trajectory of their investments.
A point of contention arises around the preliminary $64 billion valuation SoftBank has assigned to Arm ahead of the IPO. Analysts, such as Kirk Boodry from Astris Advisory Japan, raise concerns about the valuation’s validity, as it might be influenced by SoftBank’s desire to reward investors within its Vision Fund. Boodry suggests that a valuation based on an intra-company transaction lacks the strength of a comparable assessment with an external party. He asserts his estimation of Arm’s value at around $47 billion, painting a different picture than SoftBank’s evaluation.
Despite Son’s grand vision of the Internet of Things (IoT) catalyzing an unparalleled paradigm shift, the realization of this vision remains elusive, with IoT constituting only a fraction of Arm’s revenues. Analysts caution that Arm’s real potential lies in its adjacency to AI. According to Boodry, the initial excitement around Arm’s role stemmed from its software and platform capabilities, particularly with OpenAI’s innovative content creation tools. However, Arm’s fundamental nature does not align with these expectations, and its relevance in the AI realm takes on a different form.
In the sphere of AI-powered semiconductors, graphics chip specialist Nvidia has emerged as a prominent beneficiary due to its advanced technology driving data centers for large language models like ChatGPT. Here, Arm assumes a crucial subtextual role, being essential to pair Nvidia’s advanced semiconductors with energy-efficient CPUs, a niche Arm excels in. However, Nvidia is not the sole beneficiary of Arm’s technology, with Qualcomm and Apple also leveraging Arm-designed components for AI-centric chips.
Victor Galliano from Galliano’s Latin Notes expresses skepticism regarding Son’s claim that 85% of SoftBank’s portfolio companies are AI-related. Galliano emphasizes that while many SoftBank portfolio firms may embrace and integrate generative AI, this doesn’t inherently categorize them as AI companies. Investors are, therefore, cognizant of the potential for AI-driven synergies among SoftBank’s portfolio, though the lack of comprehensive information makes it challenging to determine if these opportunities can indeed be harnessed.
As the IPO filing looms on the horizon, industry stakeholders eagerly await insights that could elucidate the role of Arm in AI ambitions of SoftBank. While uncertainties abound regarding Arm’s ability to seize the AI boom’s potential, its capability to become a cornerstone of the AI market remains undeniable. With competitors integrating Arm’s technology and Nvidia’s strides in AI advancement, Arm is positioned as a significant contender. Whether this potential translates into reality is a question only time will answer.