Arm CEO Rene Haas and executives applaud as Softbank’s Arm, a chip design company, holds an IPO on the Nasdaq MarketSite in New York, September 14, 2023.
Brendan McDermid | Reuters
At opening, Arm was valued at nearly $60 billion. The company, trading under the symbol “ARM”, sold approximately 95.5 million shares. SoftBank, which took the company private in 2016, controls about 90% of the outstanding shares.
On Wednesday, Arm rated shares at the upper end of its expected range. On Thursday, the stock first traded at $56.10.
This is a considerable premium for the British chipmaker. At a valuation of $60 billion, Arm’s price-to-earnings multiple would be over 110 based on the most recent fiscal year’s earnings. 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 CFO Jason Child told CNBC in an interview that the company is focused on growing royalties and providing its customers with higher-cost, more efficient products.
Much of Arm’s royalties come from products launched decades ago. About half of the company’s royalty revenue, which totaled $1.68 billion in 2022, comes from products launched between 1990 and 2012.
“As a CFO, it’s one of the best business models I’ve seen. I sometimes joke that these older products are like the Beatles catalog, they just keep bringing in royalties. Some of these products are three decades old,” Child said.
In an investor presentation, 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 ending in March fell less than 1% from a year earlier, to $2.68 billion.
Arm’s architecture is used in almost all smartphone chips and describes how a central processor works at its most basic level, such as doing calculations or accessing computer memory.
Child said the company sold $735 million in stock to a group of strategic investors including Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company. This speaks to Arm’s influence among chipmakers, who rely on Arm’s technology to design and manufacture their own chips.
“There was interest in purchasing 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 SoftBank CEO Masayoshi Son on Thursday highlighted how Arm’s technology is used in artificial intelligence chips, as he seeks to tie the company to the recent boom in AI and learning automatic. He also said he wants to hold on to the company’s remaining stake in Arm for as long as possible.
The debut could open the market to tech IPOs, which have been put on hold. for almost two years. This is the biggest tech offering of 2023.