Big tech companies, including Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC), and Nvidia (NASDAQ: NVDA), are all set to invest in Arm, a U.K.- based semiconductor company. Arm designs the building blocks for semiconductor designers and equipment manufacturers, producing silicon chips and specialized compute systems, powering a wide range of devices and applications.
All you need to know about the upcoming Arm IPO
Arm is expected to list on the public markets by the end of September 2023. Its largest shareholder, SoftBank, will apply to list with the Securities and Exchange Commission in the U.S. in the upcoming days. It will also need to obtain approval from Nasdaq.
The IPO is expected to value Arm at a market cap of $60 billion, making it the world’s largest IPO (initial public offering) in 2023. SoftBank acquired Arm in 2016 for $31 billion, which suggests its valuation has almost doubled in the last seven years.
The SoftBank Group owns 75% of Arm, with the rest held by the SoftBank Vision Fund, which invests in tech companies globally. SoftBank Vision Fund will sell between 10% and 15% of Arm shares on the open market, a signification portion of which will be purchased by big tech companies.
Arm is one of the major players in the semiconductor industry. Nvidia, the largest semiconductor company in terms of market cap, previously intended to acquire Arm for $40 billion, but the proposal raised concerns over anti-competitive behavior.
Founded in 1990, Arm developed the integrated circuit design data, the blueprint for semiconductors. Due to its path-breaking design, Arm’s chips can be found in 90% of smartphones, and the company has shipped over 250 billion chips to date.
Processors remain some of the most complex devices ever produced and are used to power billions of transistors and specialized subsystems at extreme speeds. Using Arm’s intellectual properties, its enterprise partners can launch products quicker and benefit from an early mover advantage.
How much revenue does Arm generate each year?
In fiscal 2022, Arm reported sales of $2.8 billion, up from $1.65 billion in 2016. So, its top line has grown at an annual rate of 9.2% in the last six years. If Arm is listed at a market cap of $60 billion, the stock is priced at 21.4 times trailing sales which is quite steep.
SoftBank has been looking to list Arm on the equity markets ever since the acquisition by Nvidia was abandoned in 2020. The listing will be the first big IPO in almost a year. Last September, Technicolor Creative, a visual effects tech company based out of France, was listed on Euronext at a market cap of $97 billion.
In the past decade, low-interest rates and a bull market saw a plethora of stocks get listed on the stock markets all around the world. In 2021, companies raised a total of $416.2 billion through IPOs, which was the highest since 2000 and an increase of 80% year over year.
But higher interest rates, geopolitical tensions, elevated inflation levels, and the threat of a recession set off market turbulence since the start of 2022.
However, why is big tech bullish on Arm? First, around 90% of new enterprise applications will include some form of artificial intelligence by 2025. Analysts expect the number of voice-assisted or AI-enabled devices to be over 8 billion in the next two years, increasing demand for Arm’s portfolio of chips.
Arm emphasized, “Delivering the potential of AI compute everywhere requires us to make rapid progress across areas such as processing power, system design, and neural network model development to meet advancing market needs. Arm and its ecosystem are focused on matching what the world requires while simultaneously seeking to protect data confidentiality, privacy, and security.”
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