Semiconductor Revolution: The Impact of ARM’s Landmark IPO

The fiscal year 2023 on Wall Street has mostly acted as a highlighter of a new, never-before-seen technology boom, and it’s starting to have a far-reaching global impact on many industries. 

This enormous tech rally was kicked off by the launch of OpenAI’s ChatGPT, a generative AI (artificial intelligence) model that has since inspired a swath of competitors offering their own innovations. 

As AI plays an increasingly important role in our lives, there will also be more opportunities for investors. Some of those opportunities are already here and present themselves with a very lucrative appeal. 

There was one business that played an extraordinarily vital role in the manufacturing of chips, or semiconductors, that many of us weren’t aware of—until now, that is… 

ARM, a UK-based pioneer in chip design, took center stage on September 14th, 2023, as it embarked on its long-awaited initial public offering (IPO). It was quite a sight and rather unexpected for many; this IPO was the largest on record since 2021, netting roughly $4.87 billion in fundraising

With its roots tracing back to 1990, when it emerged as a joint venture between Acorn Computers, Apple, and VLSI Technology, ARM has “been there, done that,” if you will. Those in the know, including ARM’s backers and managers, are convinced that it’s poised for remarkable expansion in the years to come. 

Arm Holdings, initially the brainchild of SoftBank, staged an introduction on Wall Street that made immediate waves. ARM cast its opening spell with a staggering valuation of nearly $60 billion, and what ensued was the sale of roughly 95.5 million of its shares. SoftBank, the entity that ushered ARM into the private realm in 2016, retained over 90% of the outstanding shares

ARM’s day range:

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ARM set its share price at the higher end of the anticipated range. After Thursday’s opening bell, ARM’s stock commanded an impressive opening trading price of $56.10 and closed the day at $63.59

ARM’s P/E (price to earnings) ratio leaped to over 110x based on the latest year’s profits. An engaging comparison could be drawn to Nvidia (NVDA), which trades at a 108x P/E ratio. However, ARM lacks NVDA’s staggering 170% growth forecast for the current quarter. That’s for now, at least. ARM’s CFO (Chief Financial Officer), Jason Child, has emphasized its strategic focus on nurturing growth and crafting products that offer “more for less” to its varied clientele. 

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A significant slice of ARM’s royalties originates from already prominent products. Remarkably, around half of the company’s $1.68 billion in royalty revenue for 2022 is attributed to products that made their debut between 1990 and 2012. Child eloquently likened these enduring products to the timeless Beatles discography, continually delivering royalties despite their vintage status. 

In an intriguing pitch to investors, ARM shared its vision for the company, foreseeing the total market for its chip designs skyrocketing to a staggering $250 billion by 2025. This would be a huge advantage for data centers and automobiles. Also, ARM’s prowess is the backbone of nearly every smartphone chip, revealing how intricate a processor can be with its arithmetic, algorithms, and access to memory.

Notably, ARM distributed $735 million worth of its shares to a group of strategic investors, including tech titans like Alphabet, Nvidia, Apple, Samsung, AMD, Intel, and Taiwan Semiconductor, to name a few. This move is a testament to ARM’s commanding influence, as chip companies have embraced its technology to assist in their contributions to the industry. 

SoftBank CEO Masayoshi Son has accentuated ARM’s role in fueling the AI revolution and how involved the business has already been in AI and ML (machine learning). He passionately expressed that he planned to hold SoftBank’s stake in ARM for the foreseeable future. 

ARM’s debut can breathe fresh life into the technology IPO market, which had been in hibernation for nearly two years. This event marks the most monumental and influential tech offering in quite some time, heralding an era of enthusiasm for a new wave of AI-based technology that will indeed act as a change agent in each of our lives for years to come

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