Arm Continues to Soar 9% in Premarket Trading on Friday.
Shares in SoftBank's Arm Holdings soared almost 25% above their Nasdaq debut price on Thursday, rekindling investor hopes for a turnaround in the moribund market for initial public offerings (IPO).
The stock, which had opened at $56.10, notched a 24.69% gain to close at $63.59, giving the British chip designer a valuation of $65 billion in its return to public markets following a seven-year absence. The IPO had priced at $51.
The shares jumped another 2.8% in extended trading Thursday.
Arm's strong performance suggests that investor demand for initial public offerings, which had been hit hard over the last two years by geopolitical tensions and higher interest rates, may be on the rebound, market participants said.
"It is a successful IPO," said Salman Malik, partner at Anson Funds in Toronto. "It will have a positive impact on the IPO pipeline and shows the AI theme is alive and kicking."
Several companies are scheduled to go public in coming weeks, including grocery delivery service Instacart, German footwear maker Birkenstock, and marketing automation platform Klaviyo.
If those IPOs succeed, they will likely trigger a wave of stock market launches in 2024, bankers and analysts said.
Arm secured a valuation of $54.5 billion on Wednesday after pricing its IPO at the top end of the marketed range, netting $4.87 billion for SoftBank, which still holds a 90.6% stake.
The Japanese investment giant took Arm private in 2016 for $32 billion. It has been looking to cash out some of its stake since at least 2020, when it agreed to sell Arm to chipmaker Nvidia (NVDA.O) in a $40 billion deal. It had to abandon that plan due to regulatory roadblocks.
Since then it has pivoted towards an IPO, though that also came with its own hurdles, including run-ins with the British government which was campaigning for the chip designer to list in London.
Despite a strong showing on Thursday, Arm's debut marks a climb-down from the $64 billion it was valued at last month when SoftBank bought the 25% stake of Arm it did not directly own from its Vision Fund unit.
But that has not dampened SoftBank CEO Masayoshi Son's enthusiasm for Arm, the chip designer's Chief Financial Officer Jason Child said in an interview on Thursday.
"He is quite bullish on the company. The price today or even in the near term isn't really his focus, the focus is where's the price gonna be in the in the future."
Arm is indispensable in the tech hardware ecosystem as its chip designs power nearly every smartphone in the world. It disclosed last month that its annual revenue had dropped 1% as its two largest markets - smartphones and personal computers - slumped.
Child said Arm can still boost sales as it was reaping a 5% royalty rate on chips made with the newest technology versus 3% with the previous version. Premium phones are more likely to use Arm's most advanced technology.
The closest valuation comparison to Arm is circuit designer Cadence Design Systems, said some bankers who have worked on the IPO. Cadence trades at 35 times of 2025 earnings, while Arm at $51 per share trades at 29 times earnings.