Arm is one of the most important chip design companies globally. Its technology powers 95% of smartphones. Now Arm is going public in the US next week, which provides opportunities for investors. As a leading chip IP provider, Arm has strong financials. Its revenue reached $2.7 billion in 2022 fiscal year. With the support from major customers like Apple, Google, Qualcomm, Arm’s valuation is expected to reach $54 billion. However, Arm faces challenges in China where it generates nearly 25% of its total revenue. But overall demand for Arm’s IPO is still considered high.
Arm IPO finally happening after Softbank acquisition
Arm was acquired by Softbank in 2016 for $32 billion. Softbank tried to sell Arm to Nvidia in 2020 but failed due to regulatory objections. Now Softbank is pushing forward Arm’s IPO to raise liquidity and restore its financial health after huge losses from investments like WeWork. Arm’s CEO also joined Softbank’s board earlier this year. The upcoming IPO is the biggest this year so far and also the largest since Rivian’s public debut. Major tech companies like Apple, Google, Nvidia and AMD have lined up for the IPO as cornerstone investors. In total they are expected to buy $735 million worth of shares.
Strong financials but China business faces uncertainty
Arm has demonstrated strong financial performance recently. Its revenue reached $2.7 billion in 2022 fiscal year. Operating profit was $633 million and net profit hit $549 million. The company continues to see growth in the second quarter of 2023 fiscal year. However, there are investor concerns about Arm’s China business. China represents 18% of Arm’s total revenue in 2022 and 24% in 2023 driven by a JV called Arm China. Some worries China could leverage Arm’s local business for negotiation. But many analysts argue Arm’s prospects have little correlation with the current AI wave led by Nvidia, Google and OpenAI.
Ways to invest in Arm’s IPO and post-IPO performance
Retail investors can consider investing in Arm’s upcoming IPO if they have access through brokerages. But share allocation likely will be limited given the huge cornerstone demand. Post-IPO, Arm’s stock will trade on Nasdaq under the ticker symbol ARM. Financial analysts project Arm could be valued from $50 billion to $54 billion. Key things to watch are Arm’s revenue growth, China business, and new initiatives in areas like automotive and data centers. Competitions from rival architectural licenses like RISC-V could emerge as a risk factor. If Arm delivers on projections, its stock could appreciate nicely for long-term investors.
Arm’s IPO provides opportunities for investors to gain exposure to the critical chip IP segment. Given Arm’s financial strength and customer support, its IPO valuation looks reasonable. However, execution risks exist considering China uncertainty and competitions.