Arm Holdings plc this week filed its registration statement with the U.S. Securities and Exchange Commission to price shares for its upcoming IPO between $47 and $51, translating to a potential $52 billion valuation for Arm.
So, another day, another billion-dollar tech IPO, right? Well, the market for IPOs has not been very active for well over a year. In fact, at the pricing detailed in its Form F-1 registration statement, Arm’s IPO, which could happen within days, is anticipated to be the biggest IPO in more than two years. Also, Arm is not your average darling start-up about to step toward center-stage for the very first time. The U.K.-based company was publicly traded as recently as seven years ago, and since then was acquired by Softbank and not long after that almost acquired by Nvidia before the latter began its recent fast climb to AI market dominance. For these and other reasons, Arm’s IPO will be an intriguing one to watch. Here’s why you should pay attention once trading starts:
It could tell us how much the rising AI tide is capable of lifting all boats. Is Arm an AI player in a semiconductor industry that suddenly has seen its fortunes boom with rising demand for AI? Yes, although, it often is more associated with the mobile sector, a market that has been sagging of late. Also, while much of the current AI craze is around the ability to train AI models in the cloud, which has driven Nvidia to new market heights, most of Arm’s impact for now is at the edge end of the spectrum, where it is focusing on boosting the ability of mobile devices and other edge platforms to efficiently power and process AI applications. That portion of the AI market is still in development, with more to be known as more enterprises put generative AI applications into production.
Albie Amankona, Analyst at global research firm Third Bridge, summed up these points in a statement emailed to Fierce Electronics: "It's a lot more challenging for Arm to capitalize on the current trend for AI than a company like Nvidia because around 60-70% of Arm's revenues are derived from mobile, and the AI landscape is centered around cloud-based operations, rather than being heavily integrated at the device or edge level, where Arm is more prominent."
Are concerns around China sanctions growing? Arm China accounts for almost 25% of Arm’s revenue, according to published reports, and while Arm is based in the U.K. it remains unclear how evolving sanctions from the U.S. and other Western countries could affect Arm’s future success in China. Will the uncertainty scare away some investors?
The rise of RISC-V: The open source RISC-V architecture, an alternative to Arm chip architectures, has been drawing interest from a wide variety of semiconductor players, including those looking for an alternative to Arm IP licensing, as well as Chinese companies that have been driving Arm’s revenue there. The Arm IPO could further raise the profile of RISC-V as it begins to gain more traction.
Amankona stated, “The growing adoption of RISC-V chip architecture is the biggest risk for Arm. Our experts say RISC-V is already making inroads in mid and low-end applications, such as the embedded market, including automotive. It seems inevitable that Android and Microsoft will eventually embrace RISC-V, as it offers them the opportunity to lower overall costs & maintain or even improve performance.”
The IPO market is looking for a win: Getting back to the general market for IPOs–or lack thereof–not much has happened in the past couple of years, and even some recent IPOs were branded as “lackluster” debuts. In recent weeks, some market watchers expected that Arm’s IPO price would be higher than the range it eventually specified in its filing. If Arm’s stock soars on IPO day, it could signal to some that the IPO waters are once again safe to swim in, but a disappointing debut could negatively affect the IPO ambitions of many other tech companies.