British chip designer Arm Holdings' shares debut on the Nasdaq on Thursday, in what is the largest initial public offering in nearly two years.
The market waited with bated breath for the entrance of the chip designer, an initial public offering (IPO) that has caught the eye of the biggest tech companies; Apple, Samsung and Intel all signalled their interest and the world's largest contract chipmaker TSMC announced that it is going to buy into the company, up to $100 million.
Arm Holdings' shares were eventually priced at $51 before starting trade, following reports that the company's owner SoftBank Group Corp would take the price even higher after strong interest from investors across the world.
The final price secures a $54.5 billion market valuation for the company. Japanese SoftBank took it off the market seven years ago, when it was valued at $32 billion.
This time SoftBank has sold 95.5 million shares and raised $4.87 billion, still keeping nearly 90% stake in the company.
Why is Arm so valuable?
Arm's chip design is used in virtually all smartphones, the majority of tablets and digital TVs. More recently, Arm has expanded into artificial intelligence, smart devices, cloud computing, the metaverse, and autonomous driving.
Arm’s business centres on designing chips and licensing the intellectual property to customers, rather than chip manufacturing, for which it relies on partners. The company recorded $2.68 billion of revenue in its last fiscal year, which ended in March, and had $524 million in profit for that period.
Why is this IPO so important on the market?
It’s the biggest IPO since the electric truck maker Rivian debuted in November 2021 with a market value of more than $66 billion.
Arm's offering is an important development for the IPO market, which has seen relatively few companies go public in the past two years.
In 2021, nearly 400 companies went public as the stock market rallied for a third straight year, according to IPO tracker Renaissance Capital.
Then last year the Federal Reserve rapidly raised interest rates to combat high inflation and the stock market went into reverse, with the S&P dropping nearly 20% and the Nasdaq composite falling more than 30%.
Private companies became hesitant to go public, and the number of IPOs sank to 71. This year, with the economy showing unexpected resilience, 70 companies had gone public by early September.
The slump in IPOs, as well as mergers and acquisitions, has contributed to a decline in revenue at some of Wall Street's storied institutions, including Goldman Sachs. Goldman is one of the lead underwriters for the Arm IPO, as well as an offering from grocery delivery service Instacart, expected next week.