(ARM) begins buying and selling on the Nasdaq in win for SoftBank

Arm CEO Rene Haas and executives cheer as Softbank’s Arm, a chip design firm, holds an initial public offering at the Nasdaq MarketSite in New York, Sept. 14, 2023.

Brendan Mcdermid | Reuters

Arm Holdings, the chip design company controlled by SoftBank, jumped more than 16% during intraday trading Thursday after selling shares at $51 a piece in its initial public offering.

At the open, Arm was valued at almost $60 billion. The company, trading under ticker symbol “ARM,” sold about 95.5 million shares. SoftBank, which took the company private in 2016, controls about 90% of shares outstanding.

On Wednesday, Arm priced shares at the upper end of its expected range. On Thursday, the stock first traded at $56.10.

It’s a hefty premium for the British chip company. At a $60 billion valuation, Arm’s price-to-earnings multiple would be over 110 based on the most recent fiscal year profit. That’s comparable to Nvidia’s valuation, which trades at 108 times earnings, but without Nvidia’s 170% growth forecast for the current quarter.

Arm Chief Financial Officer Jason Child told CNBC in an interview that the company is focusing on royalty growth and providing products to its customers that cost and do more.

Many of Arm’s royalties come from products released decades ago. About half the company’s royalty revenue, which totaled $1.68 billion in 2022, comes from products released between 1990 and 2012.

“As a CFO, it’s one of the better business models I’ve seen. I joke sometimes that those older products are like the Beatles catalog, they just keep delivering royalties. Some of those products are three decades old,” Child said.

In a presentation to investors, Arm said it expects the total market for its chip designs to be worth about $250 billion by 2025, including growth in chip designs for data centers and cars. Arm’s revenue in its fiscal year that ended in March slipped less than 1% from the prior year to $2.68 billion.

Arm’s architecture is used in nearly every smartphone chip and outlines how a central processor works at its most basic level, such as doing arithmetic or accessing computer memory.

Child said the company sold $735 million in shares to a group of strategic investors comprising Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company. It’s a testament to Arm’s influence among chip companies, which rely on Arm’s technology to design and build their own chips.

“There was interest to buy more than what was indicated, but we wanted to make sure we had a diverse set of shareholders,” Child said.

In an interview with CNBC on Thursday, SoftBank CEO Masayoshi Son emphasized how Arm’s technology is used in artificial intelligence chips, as he seeks to tie the firm to the recent boom in AI and machine learning. He also said he wanted to keep the company’s remaining Arm stake as long as possible.

The debut could kick open the market for technology IPOs, which have been paused for nearly two years. It’s the biggest technology offering of 2023.

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