Arm will make the biggest entry into the Wall Street stock market in two years

The British chip designer arm will make its debut in NYSE on Thursday, in the largest entry to Wall Street in almost two years, a bet of US$ 50,000 million for its main shareholder, the Japanese SoftBank Group.

The operation will open the capital of this reference company in the design of microprocessors, whose models are integrated into 99% of the smartphones on the planet.

The market will have access to around 10% of the capital of this cutting-edge technology company based in Cambridge (England). SoftBank expects to obtain between US$4.5 billion and US$5.2 billion thanks to an estimated stock market valuation between US$48,000 and US$52,000 million.

The company’s stock market value far exceeds the $32 billion that the Japanese investment firm invested in taking control of Arm in July 2016, but it is significantly less than the $60 billion to $70 billion that SoftBank was aiming for ago. a few weeks, according to some media.

This is a considerable bet for the firm directed and founded by Masayoshi Son, whose balance of investment in technology has not been the best in recent years.

SoftBank made colossal losses by taking a stake in office-sharing firm WeWork and the equity of Chinese online commerce giant Alibaba.

Way of the Cross

“No one questions that it is a quality firm (…) with substantial profits and a completely viable activity. But the questions concern its growth potential,” Jay Ritter, professor specializing in stock market introductions (IPO) at the University of Florida, explained about Arm.

“This valuation of $50 billion does not seem to spark enthusiasm among institutional investors,” he said.

Some highlight that Arm designs microprocessors or CPUs, when the generative artificial intelligence (AI) revolution is based on GPUs, a more powerful type of graphics card.

The operation is also an important test for the capital markets, which have not recorded a capital opening of this magnitude since the IPO of the electric vehicle manufacturer Rivian, valued at US$ 77 billion in November 2021.

“To say that it is (a listing) highly anticipated would be an understatement”said Mark Roberts, associate manager at the consulting firm Blueshirt Capital Advisors. “We came out of a via crucis like I had not seen in my career, particularly for technological values”, he indicated.

In the 18 months from the beginning of 2022 to June 2023, US$18.7 billion in stock market capital was raised in the United States, compared to US$155.8 billion in 2021 alone, according to the consulting firm EY.

You have to go back to 1990 to find figures lower than those of 2022.

More missing

Roberts highlighted the number of banks participating in the operation: at least 27. “A good part of the Wall Street financial market is doing everything to make this listing happen correctly.”he noted, particularly because Arm privileged Wall Street over its natural home, the London Stock Exchange.

Another extra caution: SoftBank assembled a group of prestigious clients, from Apple to Nvidia, willing to invest $735 million in Arm’s capital.

“If the transaction goes well, it will be a good sign of a trend that will take hold in 2024,” Roberts anticipated.

But “I don’t think this IPO really tells us much” about the state of the market, said Avery Spear, an analyst at Renaissance Capital.

“More is needed” examples “to give us more information about the appetite awakened by the majority of firms that want to list” on the stock market, he said, mentioning Instacart or Klaviyo.

Instacart (a subsidiary of Maplebear), an order delivery platform, and Klaviyo, a digital marketing specialist, submitted their IPO request at the end of August, without specifying dates.

Their respective valuations are estimated at US$10,000 and US$9,500 million.

The names of the online payment company Stripe, the sports merchandising giant Fanatics, and the professional expense manager Navan also circulated this year.

However, the environment remains fragile, with the US economy in an incipient deceleration phase.

“Investors remain attentive but we are not the same as last year, where everything was unfavorable”Spear said. For starters, the market believes that the cycle of raising interest rates to cool the economy is about to end, and that gives investors some perspective, he concluded.

Source: AFP