Valuation falls short of Son's expectations, but IPO still in high demand! Media: ARM oversubscribed by potentially five times.
Although Arm's performance in the last quarter may have declined, the company's executives expect that, benefiting from the AI boom, its revenue could achieve at least a 20% growth in the next fiscal year ending in March 2025. This growth rate exceeds analysts' expectations. Some analysts believe that many investors initially proposed a valuation of $60 to $70 billion, but now they have lowered it to around $50 billion, deliberately creating an atmosphere of high cost-effectiveness for Arm.
On Friday, September 8th, according to media reports citing bankers participating in Arm's roadshow, Arm's US IPO is expected to generate more than five times oversubscription. The UK chip design company anticipates accelerated revenue growth in the future driven by the AI boom.
Investors are concerned about Arm's recent quarterly performance due to multiple risks such as the slowdown in the smartphone industry. However, Arm's investment advisors stated that "investors are not very sensitive to price," and many passive investors bought the stock because Arm was included in the Nasdaq Composite Index.
While Arm's smartphone chip market has stagnated this year, the company hopes to gain growth from AI and data center customers, although Arm has played a peripheral role in building the technology required for large-scale language models such as ChatGPT and other generative AI.
Arm CEO Rene Haas stated in a promotional video:
AI will be everywhere, and all AI will run on Arm's software. Our opportunities are limitless, and with the advent of the AI era, global computing demands are insatiable.
NVIDIA founder and CEO Jensen Huang also appeared in the video. He stated that NVIDIA's new Grace Hopper AI "super chip" "would not be possible without Arm's architecture, Arm CPUs' incredible performance, and business model."
During the roadshow, Arm executives projected that after a lackluster performance in 2023, the company's revenue growth will accelerate due to increased royalty fees paid by smartphone manufacturers. Arm stated that in the next fiscal year ending in March 2025, its revenue could achieve at least 20% growth, exceeding analysts' expectations.
A fund manager stated:
Investors hope that these numbers will be presented in the most optimistic way, and the reality is indeed so.
Earlier this week, Arm set the initial price range at $47 to $51 per share, raising up to $4.9 billion for its parent company SoftBank. Arm's valuation reached $52 billion.
SoftBank founder Masayoshi Son acquired Arm for $32 billion in 2016. According to sources close to Son, he believes that Arm's valuation when it starts trading on the US stock market next week may be less important than the listing itself.
Is now a good time to invest in Arm?
Analysts suggest that SoftBank plans to hold a significant portion of Arm's shares and use them for financing, which may limit the supply in the long run and drive up Arm's stock price.
Some analysts believe that the fact that many bankers are participating in the IPO despite the relatively small size of the shares being sold is itself a warning sign. An asset manager from a global tech fund stated:
Everyone is pitching Arm to us, but it feels like something happening at the end of a cycle. If this is considered the beginning of the AI cycle, people may be greatly mistaken. A few weeks ago, bankers privately raised Arm's valuation to $70 billion. Some analysts argued that it would be difficult for Arm's valuation to exceed $40 billion.
Last month, SoftBank unexpectedly purchased a 25% stake in Arm from its Vision Fund, valuing Arm at $64 billion.
Some analysts believe that many investors initially proposed a valuation of $60 to $70 billion, but now have lowered it to around $50 billion, deliberately creating an atmosphere of high cost-effectiveness for Arm.