Arm Holdings Ltd. goes public - it's the biggest IPO this year!

British chip design company, Arm Holdings Ltd., which dominates the smartphone industry, set a price of $51 per share this week ahead of the biggest initial public offering of the year today. Arm is said to have initially expected a higher price of $52 per share before settling on a lower amount.

Arm's capitalization is $54,5 billion on a fully diluted basis, slightly below the $64 billion valuation set by its current owner SoftBank Group Corp.

Arm shares are expected to begin trading today on the tech-heavy index Nasdaq Composite, under the symbol "ARM". The IPO is also expected to raise approximately $5 billion for SofBank.

ARM already dominates the market

Arm itself is not a chipmaker. Rather, it focuses on basic circuit designs. The company was founded in 1990 and from the beginning focused on mobile telephony, and later on the smartphone industry. It long became the dominant supplier of chip designs to smartphone makers and has since expanded its scope to include chips for tablets, sensors and data center servers.

In IPO documents, Arm said its chip designs helped produce $98,9 billion worth of semiconductors last year, representing 48,9% of the global market.

It seems that Arm's shares will arouse great interest among investors who believe that the company will be able to not only increase sales among its existing customer base, but also expand its operations into new markets. Arma designs are said to be the basis for over 99% of the world's smartphone chips. However, it has room to expand in areas such as the automotive industry, cloud computing and computer networks.

In the fiscal year ended March 31, Arm reported flat revenue at a time when the smartphone market was declining and sales were hampered by a troubled economy. However, in its filing, Arm points to strong growth in several of the emerging markets in which it operates.

For example, the market for processors for data center servers, data processing units and SmartNIC chips is expected to grow from $17.9 billion to $28,4 billion in 2025. Meanwhile, the automotive chip industry is expected to grow from $18,8 billion to $29,1 billion over the same period.

Artificial intelligence is the driving force

Arma also wants to take advantage of the development artificial intelligence industry, which has exploded since the advent of OpenAI's ChatGPT. Generative AI models need to be trained and run on massive computing power, and the growing interest in them creates a unique opportunity for every chipmaker. So far, the biggest beneficiary of the generative artificial intelligence boom has been the company Nvidia Corp., whose share value has more than tripled since the beginning of the year, exceeding $1 trillion.

While Arm sees potential in artificial intelligence, it also points to the market as a potential risk factor. The company said in its filing that some artificial intelligence and machine learning technologies will use algorithms that may not be appropriate for the general-purpose central processing units it designs.

“As a result, our processors may become less important in a chip based on our products, thereby reducing its value to the customer and resulting in lower revenues for us.” – said the company.

Analysts say Arm could use the expected cash inflow from the initial public offering to accelerate research and development to lower chip production costs.

According to Arm, it currently costs about $249 million to design a new semiconductor using the seven-nanometer process. That price tag will rise to $725 million for the design of chips based on the XNUMX-nanometer process, which are expected to appear later this decade.

The IPO market is back on track

The Arm IPO will be closely watched for signals of market interest in the new shares. The IPO market has stagnated over the past year as high interest rates and inflation scared off investors. According to the Journal, 2022 was the slowest year for IPOs in more than two decades.

This is also important for the broader chipmaking industry as it will capitalize on Arm  and will enable it to become more competitive in a dynamic and disruptive era where artificial intelligence is quickly becoming a key driver in many markets.

Interestingly, Arm will debut on the stock exchange for the second time, the first time was in 1998. In 2016, SoftBank bought the company for $32 billion and took it off the floor.