On Thursday, shares of SoftBank's Arm Holdings jumped over 25% higher than their Nasdaq debut price, reviving investor optimism for a turnaround in the sluggish IPO market.
The stock, having opened at $56.10, increased by 24.68% and ended at $63.59, giving the British chip creator a valuation of $65 billion after its seven-year disappearance from the public market. The IPO's price was $51.
According to market participants, Arm's good performance shows that investor appetite for new public offerings, which was severely impacted over the previous two years due to geopolitical tensions and interest rate hikes, might now be on the rise once again.
Salman Malik, partner of Toronto's Anson Funds, described the IPO as "successful." The IPO pipeline will benefit from it, and it demonstrates the vitality of the AI topic.
In the upcoming weeks, a number of businesses will go public, including grocery delivery company Instacart, the German shoe manufacturer Birkenstock, and the marketing automation platform Klaviyo.
According to analysts and bankers, if those IPOs are successful, they will probably spark a surge of new stock market listings in 2024.
After pricing its initial public offering at the highest level of the marketed range on Wednesday, Arm achieved a valuation of $54.5 billion, earning $4.87 billion for SoftBank, which currently owns a 90.6% share.
In 2016, the Japanese investment behemoth paid $32 billion to take Arm private. Since roughly 2020, when it decided to sell Arm to Nvidia for $40 billion, it has been aiming to sell off some of its shares. That plan had to be abandoned because of regulatory obstacles.
Since then, the company has pivoted to become public, but it has also faced challenges, including conflicts with the British government, which was pushing for the chip manufacturer to list in London.
Despite a solid performance on Thursday, Arm's debut still shows a decline from the $64 billion that it was valued at last month when SoftBank purchased a 25% stake in Arm.
However, Jason Child, the chief financial officer of the chip designer, said on Thursday that it hasn't lessened SoftBank CEO's enthusiasm for Arm. According to him, SoftBank CEO Masayoshi Son has great confidence in the company.
Since practically all smartphones in the world are powered by Arm's chip designs, Arm is an essential component of the modern hardware ecosystem. It revealed last month that its two biggest markets, smartphones and private computers, had declined, causing a 1% decline in annual revenue.
Child claimed that Arm can still increase sales since it is earning a 5% royalty rate from chips created with the most recent technology as opposed to a 3% royalty rate with the older one. The most cutting-edge Arm technology is more likely to be found in premium phones.
Nasdaq scores
The Nasdaq, which got the listing, may see future earnings growth benefit from Arm's debut.
Large transactions like Arm give the Nasdaq immediate exposure and are a long-term wager to increase the recurrent income the exchange receives from annual fees for listing, according to analysts.
Andrew Bond, the managing director of Rosenblatt Securities, said that Nasdaq is always able to generate revenue not just from the listing but also from the other services it sells to those companies that are listed on their exchange.