SoftBank Wants An Arm And A Leg

SoftBank Wants An Arm And A Leg
Daniel Johnston

7 months ago2 mins

Mentioned in story

What’s going on here?

SoftBank’s listing of Arm, its mammoth chip designer, is shaping up to be a bonanza.

What does this mean?

Bankers had previously suggested that Arm’s listing could value the company anywhere between $30 billion and $70 billion. But now SoftBank’s reportedly shooting for the upper end of that range, targeting a valuation of between $60 and $70 billion. The reason: a surge in interest in AI chips. Arm’s tech is found in nearly every smartphone worldwide, but it’s their advanced offerings for cloud and AI applications – among the most expensive and profitable offerings in the industry – that are really turning heads. All in all, Arm is hoping to raise around $10 billion from the listing, which would make it one of the biggest tech listings ever.

SoftBank Arm IPO

Why should I care?

For markets: A shot in the Arm.

SoftBank, which bought Arm for $32 billion in 2016, is keen to chalk up a win after some costly startup investments – and this listing could be just the ticket. For one, industry giants like Nvidia and Intel are reportedly in talks to become big “anchor investors”, which could further stoke interest. Plus, with a lull in IPOs, investors hungry for AI could throw their cash at one of the year’s biggest market debuts.

Global IPOs
Source: Wall Street Horizon

The bigger picture: Within Arm’s reach.

Some of Arm’s executives are reportedly whispering about an $80 billion valuation, but that could be a long shot. See, even if you take the enterprise value-to-sales ratio – a key valuation metric – of a leading firm like Nvidia, and apply it to Arm, then the firm would still only be expected to pull in $67 billion. Given Nvidia’s leadership in the space, it’s a stretch to imagine Arm outpacing it – and it’ll be a feat if it even comes close.

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