Arm Made Nasdaq Debut with Nearly 25% Gains in the Hottest IPO in Years

Arm Nasdaq Debut

Arm Holdings plc is a British chip designer founded in 1990 and considered the crown jewel of the UK tech sector. What Arm does, is it creates a set of instructions based on which other firms manufacture their processors and it makes money from royalties and licenses. It is indispensable to the mobile devices market, since nearly all of the world's smartphones run on Arm-based processors, including those from Apple, which recently unveiled the latest iPhones. But its designs are also used on cloud infrastructure, the automotive market and elsewhere.

The company started trading publicly on Thursday, on Nasdaq Global Select Market under the ticker "ARM", at $51/share ^[2] and gained nearly 25% on the first day of trading. It went as high as $66.28, before closing at $63.59 and rose further in extended trading. This was the biggest Initial Public Offering (IPO) of the year and one of the hottest since the debut of EV startup Rivian Automotive in late 2021.

Source: www.tradingview.com

This could act as a cautionary tale for blockbuster IPOs though, since after the initial jump during the first few days, Rivian's stock fell substantially and had a poor run since, closing last month below $23. Rivian struggled in an adverse external environment of supply chain constraints, soaring inflation, very highs interest rates and economic uncertainties. However, its last quarterly results cretaed optimism that it may be turning the corner.

Arm tries to capitalize on this year's AI-fueled tech boom with the timing of its IPO and it has the potential to offer Wall Street its next success story. It is a key player in the smartphone industry and its designs are also used on AI, with Arm noting that its technology "will be central to this transition". Its total addressable market (TAM) was approximately $202.5 billion in calendar 2022 and the firm expects it to grow to nearly $247 billion by the end of 2025, including growth in sectors like data centers and automotive. ^[3]

There are concerns though around the pricing, since the $65+ billion seems high for a company that made a net profit of just $524 million in Fiscal 2023 (period ended March 31) and its revenue stagnated at around $2.5 billion. Furthermore, the IPO comes at period of heightened Sino-Western tensions, with curbs in critical advanced technology. 24% of those Revenues came from China.

The successful first day of trading for Arm, helped lift the broader tech sector and Softbank, which owns around 90% of its shares. NAS100 rose around 0.7% yesterday and Softbank's stock jumped by similar amount today in Tokyo.

It also boosted the banking sector, as it could revitalize IPO activity, which had been subdued over the past couple of days. US banking giants and two of Arm's IPO underwriters, Goldman Sachs and JP Morgan Chase, rose by nearly 2% and 3% respectively.