On Friday, September 8, media sources citing bankers involved in ARM's roadshow reported that the U.S. IPO for ARM, the British chip design company, might see oversubscription by more than five times. The company anticipates that the AI boom will drive its revenue growth in the coming years.
Despite concerns over ARM's recent quarterly performance due to risks like a slowdown in the smartphone industry, ARM's investment advisors conveyed that "investors aren't overly price-sensitive." Many are passively buying into the stock as ARM is included in the NASDAQ Composite Index.
While ARM's smartphone chip market has stagnated this year, the company hopes to see growth from AI and data center clients. However, ARM has played a peripheral role in developing the technology required for large language models for generative AIs like ChatGPT.
ARM CEO Rene Haas suggested in a promotional video that AI will be ubiquitous, and all AI runs on ARM's software. He emphasized the limitless opportunities as the demand for computation in the AI era is insatiable.
NVIDIA's founder and CEO, Jensen Huang, also appeared in the video, stating that NVIDIA's new Grace Hopper AI "super chip" would not have been possible without ARM's architecture, incredible CPU performance, and business model.
During the roadshow, ARM executives projected that after a lackluster 2023, the company's revenue growth would accelerate due to increased licensing fees from smartphone manufacturers. ARM expects at least a 20% revenue growth in the fiscal year ending March 2025, surpassing analyst expectations.
An anonymous fund manager commented that investors hoped for the numbers to be presented in the most optimistic light, and they indeed were.
Earlier this week, ARM set its initial price range at $47 to $51 per share, potentially raising up to $4.9 billion for its parent company, SoftBank, valuing ARM at up to $52 billion.
SoftBank's founder, Masayoshi Son, acquired ARM in 2016 for $32 billion. Insiders close to Son revealed that Son believes ARM's valuation upon its U.S. stock market debut next week might be less significant than the listing itself.
Is now a good time to invest in ARM? Analysts suggest that SoftBank's plan to retain a majority of ARM shares and finance with these shares might limit supply in the long run, potentially boosting ARM's stock price.
Some analysts believe that the small scale of ARM's stock offering, combined with the large number of bankers involved in the IPO, is a red flag. An asset manager from a global tech fund remarked that everyone is pitching ARM, but it feels like something that happens at the end of a cycle. If people consider this the beginning of the AI cycle, they might be sorely mistaken.
Weeks ago, bankers privately raised ARM's valuation to $70 billion. Some analysts countered, arguing that it's challenging to see ARM's valuation exceeding $40 billion.
Last month, in a surprising move, SoftBank unexpectedly purchased 25% of ARM's shares from its own Vision Fund, valuing ARM at $64 billion.
Some analysts believe that many investors initially proposed valuations between $60 to $70 billion and have now reduced it to around $50 billion, deliberately creating an atmosphere suggesting ARM offers great value for money.
