Arm Holdings Achieves $54.5 Billion Valuation in U.S. IPO

In a significant development, chip designer Arm Holdings successfully secured a valuation of $54.5 billion in its highly anticipated U.S. initial public offering (IPO) on Wednesday.
Arm chip business
This milestone comes seven years after SoftBank Group took the company private for $32 billion. The IPO, which represents a strategic move for both Arm and SoftBank, was priced at $51 per share, at the top of its indicated range, generating $4.87 billion for SoftBank through the sale of 95.5 million shares, SoftBank said in a news statement .

The $54.5 billion valuation in the IPO is notably lower than the $64 billion valuation at which SoftBank acquired the remaining 25 percent stake in Arm just last month from its $100 billion Vision Fund, Reuters news report said. Nevertheless, this outcome is more favorable for SoftBank than its previous $40 billion deal to sell Arm to Nvidia, which was abandoned last year due to opposition from antitrust regulators.

Arm Holdings has been actively working to attract cornerstone investors for its IPO, successfully securing commitments from major clients, including tech giants Apple, Nvidia, Alphabet, Advanced Micro Devices (AMD), Intel, and Samsung Electronics. These commitments highlight the confidence these industry leaders have in Arm’s future growth prospects.

While Arm has traditionally dominated the mobile phone market with a 99 percent share, the company is aiming to diversify its revenue streams. Weak mobile demand during global economic slowdowns has led to stagnant revenue, with total sales reaching $2.68 billion in the 12 months ending in March, compared to $2.7 billion in the previous period.

To convince investors of its growth potential, Arm is eyeing expansion in markets beyond mobile phones. The company emphasized the cloud computing market, where it holds only a 10 percent share, as a growth opportunity, with an expected annual growth rate of 17 percent through 2025, partly driven by advancements in artificial intelligence. Additionally, Arm’s dominance in the automotive market, with a 41 percent share, positions it well to capitalize on an estimated 16 percent growth in that sector, compared to the relatively modest 6 percent expected growth in the mobile market.

Arm’s royalty fees, a substantial portion of its revenue, have been steadily accumulating since the early 1990s. In the latest fiscal year, royalty revenue reached $1.68 billion, up from $1.56 billion in the preceding year.

One notable point of investor scrutiny is Arm’s exposure to the Chinese market, given ongoing geopolitical tensions between the United States and China and the global race to secure chip supplies. In the fiscal year 2023, sales in China accounted for 24.5 percent of Arm’s $2.68 billion in revenue, making it a crucial market for the company’s future success.

Arm’s shares are set to commence trading in New York on Thursday, marking a pivotal moment in the company’s journey as it seeks to leverage its technological expertise and industry partnerships to drive growth and innovation in the ever-evolving semiconductor landscape.