Chip designer Arm Holdings Ltd., owned by SoftBank Group Corp (TYO: TYO:9984), is reportedly contemplating raising the price range of its highly anticipated Initial Public Offering (IPO) following an overwhelming interest from potential investors. The company's shares are now more than five times oversubscribed, leading Arm to consider pricing at the top or above its initial range, potentially valuing the company at as much as $54.5 billion.
Arm first filed for its IPO with an initial price range of $47 to $51 per share, potentially valuing the company at $54.5 billion at the upper end of this range. This valuation marked a departure from earlier estimates, which had pegged the company's worth in the range of $60 billion to $70 billion. However, due to robust demand from investors, Arm is now considering revising its price range upward.
Alternatively, Arm is exploring the possibility of retaining the existing price range but pricing the IPO shares at a level above this range. This approach would similarly lead to a valuation exceeding the $54.5 billion benchmark while maintaining consistency in its pricing guidance.
Despite potential valuation adjustments, SoftBank plans to retain a 90.6% stake in Arm Holdings following the IPO. This decision aligns with SoftBank's long-term vision for Arm and underscores the strategic importance of maintaining a significant interest in the chip design leader.
Arm's journey to the public market began in 2020 when SoftBank started exploring the possibility of listing the company. The plan faced delays and obstacles, but with the resurgence of the semiconductor industry and growing demand for Arm's semiconductor designs, the timing seemed ripe for an IPO.
Arm's decision regarding a potential adjustment to its pricing strategy is pending crucial investor orders scheduled for Monday. These orders are pivotal in gauging the level of demand from institutional and retail investors. However, sources caution that the landscape remains fluid, with some investor commitments yet to be solidified and the trajectory of orders subject to change.
Arm has successfully secured a lineup of cornerstone investors for its IPO, including some of the biggest names in the tech industry. The company currently dominates the mobile phone market with a 99% share and is positioning itself for growth beyond mobile devices. Arm has only a 10% share in the cloud computing market, offering room for expansion. The company cited an expected annual growth rate of 17% through 2025, driven in part by advances in Artificial Intelligence.
Moreover, Arm boasts a 41% share in the automotive market, which is forecasted to expand by 16%. This growth outpaces the expected 6% growth in the mobile market, demonstrating the diversification potential.
Arm's Nasdaq debut was initially expected to energize the anemic initial public offerings market. However, it has turned into a hard sell powered by more than two dozen investment banks. SoftBank plans to sell only 9% of Arm’s shares and will pledge out a 75% stake for margin loans once the stock debuts.
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