Trading of shares in British chip designer Arm begins today. City eyes will be closely watching stock price moves for the most hotly anticipated tech IPO of the year following the firm’s decision to close its order book early after being oversubscribed by a factor of ten.
Arm’s target price range has shifted around somewhat in recent weeks, in signs it is proving difficult to price a big tech company amid a slump in listings.
Owner SoftBank had been eyeing a valuation of $60-70 billion for it earlier this year, before setting Arm’s IPO price at $47-51 a share last week, giving it a significantly lower market value of $54.5 billion. But it now looks set to price at the top end of that range or higher still.
James Ashton, former business editor of the Standard and author of The Everything Blueprint, which chronicles the history of Arm, said: “You would imagine with 28 banks on the ticket this company would sell well.”
“Any upward revision on the price would suggest that CEO Renee Haas’s growth story is getting through. People get excited by Arms 1,000+ tech partners and millions of software partners working with Arm’s infrastructure -- you need that foundational base on which to sell other things.”
Arm is seeking to raise as much as $4.9 billion from the stock market listing, and is understood to have tempted investors with the promise of 11% revenue growth this financial year, rising to the mid-20% range in 2025 amid an expected boom in demand for chips used in data and AI.
The firm, which was bought by Japanese investment firm SoftBank in 2016 in a £24 billion deal, came close to being acquired by chip giant Nvidia in 2020 before the deal was blocked by regulators in the US and the UK.
The major shareholders are going to be some of Arm’s major customers. Other companies are going to be put off if they perceive Arm is prioritising a customer that has shares in it.
But since that time, Nvidia has seen its share price more than triple on investor excitement over demand for chips in AI, while Arm has seen its value grow more modestly, raising questions about whether the Cambridge-based business has lost its edge in catering to the latest technologies.
Devin Kohli, co-head of venture capital firm Outward, said: “The business itself is a very good business but the question is where the growth is going to come from.
“Past growth has come from making chips for iPhones but the big thing now is chips needed for a different type of phone that needs AI compatibility… building that has a longer trajectory.
“The immediate forecasting of arm’s revenue growth warrants a massive valuation spike, but it’s probably forecasts over the next five years that will count.”
The rise of chip technology in China could also be raising Arm investor concerns. A new chip built into Huawei’s latest smartphone, unveiled last week suggested China’s domestic chip-making capabilities were more advanced than previously thought.
“The most well-documented challenge the complicated ownership structure for Arm China,” Ashton said.
“Arm has done very well in China and its architecture has underpinned a lot of Chinese-designed chips. But all tech companies cite the concern that the Chinese will find a way of learning from your tech and designing it for themselves.”
Finally, there’s the question of how Arm’s strategy might change when it becomes public.
Charles Sturman, chair of the Semiconductor Leadership Group and a former employee of Acorn, a now-defunct computer company which co-founded Arm in 1990, said the chip designer’s future growth could depend on how it works its new shareholders as a listed company.
“The important thing for Arm is it has to remain neutral,” he said.
“The major shareholders are going to be some of Arm’s major customers. Other companies are going to be put off if they perceive Arm is prioritising a customer that has shares in it.”
Whether Arm’s share price soars or sinks in the days following its IPO, the fact that trading activity is taking place in New York has come as a blow to Prime Minister Rishi Sunak, who fought hard to persuade SoftBank that the firm should return to the London Stock Exchange, where its shares were traded up until 2016. But even hopes for a dual UK-US listing were dashed as SoftBank was attracted to the prospect of higher valuations in New York.
“[SoftBank CEO] Masayoshi Son is certainly a good businessman but it’s a shame it’s not a UK-listed business,” Sturman said.
“My concern is that any company that is foreign-owned is probably looking at investment decisions and prioritising its home country over satellite offices.
“It would have been helpful to have had a dual listing so at least the corporate structure remained committed to the UK.”