Arm files for Nasdaq IPO, seeking to cash in on AI boom

INFRA

Arm Holdings Ltd., the chip designer owned by SoftBank Group Corp., today filed for a Nasdaq listing ahead of what will likely become the largest U.S. initial public offering of the year.

Although the market for IPOs has been dormant for the past 20 months, Arm believes its business will flourish as interest in artificial intelligence technologies grows.

In its filing, Arm said the offering is being led by a host of top banks, including Barclays Plc, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. It also listed 24 additional underwriters in its documents.

The IPO could potentially bring a windfall to SoftBank and its founder Masayoshi Son, helping to offset losses of about $30 billion recorded by his Vision Fund last year. At the same time, a successful listing could also encourage other startups to accelerate their own IPO plans. It’s believed that a number of privately held technology firms, including the data automation provider Klaviyo Inc. and the delivery firm Instacart Inc., are waiting for the right market conditions to go public.

Arm expects to price its IPO in the second week of September, Bloomberg reported. The company didn’t disclose its proposed terms for the share sale, but reports elsewhere say it’s seeking a valuation of between $60 billion and $70 billion.

As for its target, it was initially said to be aiming to raise between $8 billion and $10 billion from the sale, but that target may well be lower. That’s because SoftBank has reportedly opted to hold onto a bigger stake in the company after buying out Vision Fund’s stake several days ago in a deal that valued Arm at more than $64 billion.

Many analysts believe the offering will give a much-needed boost to the struggling IPO market. Arm’s listing is set to be the biggest since Rivian Automotive Inc. raised $13.7 billion in October 2021.

That optimism reflects Arm’s belief that it can cash in on the enormous excitement around AI. With the rise of generative AI models such as OpenAI LP’s ChatGPT sparking massive interest in the technology, Nvidia Corp. this year grew its market capitalization to more than $1 trillion, underscoring how chipmakers are poised to benefit from the industry.

Arm is not so closely associated with AI, though. It’s best known for its chip designs that are used in almost every smartphone in the world. The company designs and sells blueprints for chipmakers to design microchips. It also licenses instruction sets that specify how software can communicate with those chips. Arm’s designs are notable for their superior power efficiency, which is the reason they’re so popular with smartphone makers, since a long battery life is critical.

More recently, under Chief Executive Rene Haas, who has led the company since last year, Arm is looking to expand beyond the smartphone industry. As smartphone sales have stagnated amid the current poor economy, Arm has targeted the markets for personal computers, data center servers and also AI.

The data center server chip market is especially profitable and Arm has made good inroads there, with the cloud computing giant Amazon Web Services Inc. becoming one of its chief customers. AWS advertises its Arm-based virtual machines as more efficient in terms of energy and economics, and they’re currently used by more than 40,000 of its customers, according to Arm’s filing.

Arm also insists that its chips will prove essential for AI applications. Unlike Nvidia, Arm doesn’t design the graphics processing units that sit at the heart of AI, performing training and inference workloads. However, its central processing units are still needed. “The CPU is vital in all AI systems, whether it is handling the AI workload entirely or in combination with a co-processor, such as a GPU or an NPU,” Arm said in its paperwork.

Despite the scant number of new listings over the past couple of years, many analysts believe that the market could be now ripe for a run of high-valued tech IPOs, said Charles King of Pund-IT Inc. He explained that investors can respond positively to Arm’s high-profile and its longstanding success in mobile chip designs and boost its initial share value.

However, King said there are question marks over Arm’s portrayal of its relevance in AI. “It’s not clear if this is realistic,” he said. “To date, Nvidia has been the biggest benefactor of AI hype due to the prevalence of its systems in machine learning and large language model training. Nvidia does employ Arm designs in some of its products, including its data center super chips, but that’s a small portion of its total sales.”

In terms of competition, Arm lists the x86 instruction set that’s used by Intel Corp. and Advanced Micro Devices Inc., as well as the open-source RISC-V instruction set, as its chief rivals.

Arm isn’t new to the stock market. After it was founded in 1990, it held its first IPOs on the London Stock Exchange and Nasdaq in 1998, and remained a publicly traded company until 2016, when it was acquired by SoftBank and went private.

SoftBank had originally tried to offload Arm to Nvidia, agreeing to a $40 billion sale. That would have been the largest-ever acquisition in the chipmaking industry, but the deal fell through amid strong opposition from regulators and Arm’s customers.

“Overall, it seems likely that Arm could well have a popular and successful IPO,” King added. “Whether the company and other SoftBank holdings will be able to ride enthusiasm for AI to even greater heights remains to be seen and likely won’t become clear for some time.”

Image: Arm