Chip Designer Arm Is Flexing For Its Valuation

Chip Designer Arm Is Flexing For Its Valuation
Paul Allison, CFA

3 months ago2 mins

What’s going on here?

British chip design firm Arm is reaching for a valuation somewhere between $50 and $55 billion, according to recent news.

What does this mean?

The market for initial public offerings (IPOs) has been dead as a dodo recently, so the upcoming listing of semiconductor mega-firm Arm is hotly anticipated. And the price – or the valuation – is just the start. Whether the newly listed shares pop or drop depends on other things too. Timing, for example, is a biggie. If Arm's Japanese owner SoftBank floats it at just the right time, when investors are bullish on all things semiconductors, then the stock could start moving at full sail. But if the company misses that tide, then Arm's maiden voyage could see it stuck in relatively shallow waters.

IPO market

Why should I care?

Zooming in: Let’s talk numbers.

If Arm does clock up a valuation between $50 and $55 billion, it’d be worth roughly 19 times its recently disclosed annual revenue. To put that into perspective, that kind of figure’s in the same ballpark as AI wunderkind Nvidia. And working out if that’s a bargain or not depends almost entirely on whether Arm’s poised for an AI-centric future. Up to now, Arm’s chip designs have been the backbone of standard semiconductors in phones and computers – but they’ve not been weaved into the AI-powering tech. Naturally, then, Arm’s gearing up to argue that a change is on the horizon.

Investors favor chip stocks

For markets: Titillating the titans.

If you’re thinking of snagging some Arm shares post-listing, then you’ll probably find yourself in good company. Remember, Nvidia once tried to buy Arm lock, stock, and barrel from SoftBank – and while regulatory hurdles ultimately thwarted that deal, it still revealed Nvidia’s keen interest. Now, with the IPO in sight, it looks as though other tech behemoths like Apple and AMD might be mulling over a piece of the Arm pie too.



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