Plummeting public and private market valuations during 2022 caused many “big name” companies to delay their plans to go public. But as rates and inflation stabilized this summer and the Nasdaq rose over 40% from its October lows, several companies began testing the waters again. 🤔
With that said, British semiconductor designer Arm Holdings is the largest U.S. IPO since 2021 and the first major tech name to test investors’ risk appetite. And test the appetite it did.
The SoftBank-controlled chip giant priced its shares at the top end of its $47-$51 expected range, giving it a roughly $54.5 billion valuation. 💰
Demand was expected to be strong out of the gate, with the company pre-selling 735 million shares to a group of strategic investors, including Apple, Google, and Nvidia. And retail investors focus on Nvidia and the artificial intelligence (AI) revolution spurred a lot of demand at retail brokerages like SoFi and Robinhood that had small allocations available for their clients at the $51 price point.
As a result of this demand, it’s no surprise that the stock initially popped around 10% from its list price, opening at $56.21 around noon ET and rallying from there. The 1-minute chart shows prices relaxed midday but surged late in the trading day to close 25% above its list price at $63.59 at a $60 billion valuation. 🤩
It offered 95.5 million shares, raising the company just under $5 billion, though it’s important to note SoftBank still owns roughly 90% of its shares. 🤑
Despite a successful first day of trade, some argue Arm’s valuation is lofty compared to its peer group. The bull case is that Arm expects the total market for its chip designs to be $250 billion, so with it’s annual revenue in the $2.7 billion range, there’s a lot of room for growth.
We’ll have to see if the market continues to support this valuation in the days ahead. But for now, there appears to be a lot of appetite for a potential growth story in the semiconductor industry. 🤷
As for whether Arm’s IPO can kick off a flurry of new deals for bankers, signs are that’s unlikely to be the case. Investors have been burned by many recent public offerings, whether done traditionally or through a special purpose acquisition vehicle (SPAC). As a result, they’re behaving cautiously and opting to participate in big-name IPOs like Arm, where there’s a clear appetite from Wall Street and Main Street.
The chart below from stockanalysis.com shows 109 IPOs so far in 2023, at the lower end of its range since 2000 and well off its 2020 and 2021 peaks. The early part of this new decade brought with it a lot of froth. And past booms suggest it’ll take a few years for that excess to work itself off before returning to more average numbers. 🧊