Arm Holdings Experiences Double-Digit Increase in Annual IPO

Call it Wall Street’s Groundhog Day.

When shares of Arm, the British chip designer, began trading on the Nasdaq stock exchange, investors, tech executives, bankers, and start-up founders were watching closely for how it performed.

If Arm’s stock fell, they knew the market for initial public offerings (I.P.O.s) was likely to stay frozen for longer. But a warm welcome for the shares would probably mean many more companies going public in the coming months, ending the cold streak.

They quickly got their answer: It was an early spring. Arm’s shares opened trading at $56.10, up 10 percent from its initial offering price of $51. Shares quickly rose above that, hitting $59.

That is positive news for upcoming listings from Instacart and Klaviyo, which are expected to go public next week. It also provides a boost to the entire tech industry, which has been waiting for market conditions to improve for nearly two years.

“Offerings like this are often beacons to try to decipher what is the sentiment, overall, of this marketplace,” said David Hsu, a professor of management at the Wharton School at the University of Pennsylvania.

Arm’s debut may encourage other companies to tap the public markets, he said. “If you can break a logjam in one important corner of this private market, that tends to flow all the way down to the private capital providers.”

Arm is the largest company to brave the public markets in 2023, a year that has been almost deathly quiet for I.P.O.s. The chip designer, which is owned by SoftBank, had priced its offering at $51 a share, raising $4.87 billion and valuing the company at $54.5 billion.

That stands out in a year that has been the worst for I.P.O.s since 2009, according to an analysis by EquityZen, a marketplace for private company stock. So far this year, 73 I.P.O.s in the United States have raised $14.8 billion, according to Renaissance Capital. That’s a fraction of the listings during 2021, when 397 companies raised $142 billion.

There is a backlog of roughly 200 companies that should have gone public by now, according to an analysis by PitchBook, which tracks start-ups. The shoe company Birkenstock filed to go public on the New York Stock Exchange this week.

“A lot of companies are exploring the market right now,” Kyle Stanford, an analyst at PitchBook, said. “The demand is there.”

Arm provides an essential technology that is geopolitically and strategically coveted, which also means it faces challenges.

Founded in 1990 in Cambridge, England, the company sells blueprints of a part of a chip known as a processor core. Arm’s chip designs are primarily used in smartphones, but the company has pitched itself as able to ride the wave of artificial intelligence sweeping Silicon Valley.

Arm has been the subject of much global interest, with SoftBank buying the company for $32 billion in 2016. SoftBank is set to retain a majority stake in Arm after the I.P.O.

In 2020, Nvidia reached a deal to buy Arm from SoftBank for $40 billion. But that plan collapsed 18 months later after opposition from regulators and customers.

On Thursday, Arm’s chief executive rang the Nasdaq opening bell at the exchange’s studio in New York’s Times Square, along with SoftBank’s chief financial officer and other executives.

In an interview, Arm’s CEO said he was pleased that Arm’s offering priced near the top of the proposed range but was more focused on the future.

Arm is not receiving any proceeds from the offering, as all shares were sold by SoftBank.

Investors remain cautious to skeptical about other tech companies — such as Instacart and Klaviyo — that are readying to go public, with expectations low.

To instill confidence in the public offerings, many of the companies have tried reassuring Wall Street that they are desirable investments. Before its offering, Arm said it had lined up $735 million of “stated interest” in buying its shares from companies it works with, including Nvidia, Google, Samsung, Apple, and Intel.

Arm on Thursday did not disclose additional details concerning those investments, but Taiwan Semiconductor Manufacturing Company said this week that its directors had approved an investment of up to $100 million in the offering.

Instacart made a similar move, selling $175 million of its I.P.O. shares to PepsiCo. Klaviyo also announced that it had secured the investment firms BlackRock and AllianceBernstein as “cornerstone” investors ahead of its offering.

Arm, Klaviyo, and Instacart have also drawn attention to their profits. Rising interest rates and inflation have made investors more risk-averse, with many shifting their priorities from fast-growing companies to those that can make money.

The profits contrast with the many cash-burning companies that went public in the boom times of 2021, which have since seen their stock prices plummet.

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