Monday, March 4

Arm Soars 25% in the Year’s Biggest Initial Public Offering

Call it Wall Street’s Groundhog Day.

When shares of Arm, the British chip designer, began trading on the Nasdaq stock exchange on Thursday in the year’s biggest initial public offering, investors, tech executives, bankers and start-up founders were watching closely for how it performed.

If Arm’s stock fell, they knew the market for I.P.O.s was likely to stay frozen for longer. But a warm welcome for the shares would probably mean many more companies going public in the coming months, ending the cold streak.

They quickly got their answer: It was an early spring. Arm’s shares opened trading at $56.10, up 10 percent from its initial offering price of $51. Shares quickly soared further, rising 25 percent by the end of trading to close at $63.59 and giving the company a fully diluted valuation of $67.9 billion.

That is positive news for listings from the grocery delivery start-up Instacart and the advertising tech company Klaviyo, which are expected to go public next week. It also provides a boost to the entire tech industry, which has been waiting for market conditions to improve for nearly two years.

“Offerings like this are often beacons to try to decipher what is the sentiment, overall, of this marketplace,” said David Hsu, a professor of management at the Wharton School at the University of Pennsylvania.

Arm’s debut may encourage other companies to tap the public markets, he said. “If you can break a logjam in one important corner of this private market, that tends to flow all the way down to the private capital providers.”

Arm is the largest company to brave the public markets in 2023, a year that has been almost deathly quiet for I.P.O.s. The chip designer, which is owned by SoftBank, had priced its offering on Wednesday at $51 a share, raising $4.87 billion.

That stands out in a year that has been the worst for I.P.O.s since 2009, according to an analysis by EquityZen, a marketplace for private company stock. So far this year, 73 I.P.O.s in the United States — including Arm — have raised $14.8 billion, according to Renaissance Capital, which tracks public offerings. That’s a fraction of the listings during 2021, when 397 companies raised $142 billion.

There is a backlog of roughly 200 companies that should have gone public by now, according to an analysis by PitchBook, which tracks start-ups. The shoe company Birkenstock, owned by the private equity firm L Catterton, filed to go public on the New York Stock Exchange this week.

“A lot of companies are exploring the market right now,” Kyle Stanford, an analyst at PitchBook, said. “The demand is there.”

Arm is a particularly interesting test of the public market because it provides an essential technology that is geopolitically and strategically coveted, which also means it faces challenges.

Founded in 1990 in Cambridge, England, the company sells blueprints of a part of a chip known as a processor core. Its customers include many of the world’s largest tech companies, like Apple, Google, Samsung and Nvidia.

Arm’s chip designs are primarily used in smartphones, but the company has pitched itself as able to ride the wave of artificial intelligence sweeping Silicon Valley. Many A.I. companies need the most advanced computer chips to do the sophisticated calculations required to develop the tech.

Arm has been the subject of much global interest, with Japan-based SoftBank buying the company for $32 billion in 2016. SoftBank, which needs a big win after years of deals that didn’t live up to their promise, is set to retain a majority stake in Arm after the I.P.O.

In 2020, Nvidia reached a deal to buy Arm from SoftBank for $40 billion. But that plan collapsed 18 months later after opposition from regulators and customers.

On Thursday, Rene Haas, Arm’s chief executive, rang the Nasdaq opening bell at the exchange’s studio in New York’s Times Square, along with Yoshimitsu Goto, SoftBank’s chief financial officer, and other executives. Around 2,000 Arm employees in Cambridge, England, joined the festivities through a video feed.

In an interview, Mr. Haas said he was pleased that Arm’s offering priced near the top of the proposed range but was more focused on the future.

“While today is an amazing day, I’m far, far more excited about the next five to 10 years,” he said. Arm has been diversifying to place its technology in myriad other products equipped with some level of computing power, including cars, consumer products and data centers.

The company is not receiving any proceeds from the offering, since all shares were sold by SoftBank. Arm had more than $2 billion in cash and short-term investments to fund its activities as of the end of June.

SoftBank, which needed a big win from Arm after stumbles with other investments, had bought back Arm shares from investors a few weeks ago at a valuation of $64 billion.

In an interview with CNBC, Masayoshi Son, SoftBank’s chief executive, said he paid that price tag because of his confidence in Arm’s future and that he expected the stock to have “good upside” over the long term.

He added that SoftBank was unlikely to sell more of its roughly 90 percent stake in the company. “Our intent is to hold as much as possible as long as possible,” he said.

Investors remain cautious to skeptical about other tech companies — such as Instacart and Klaviyo — that are readying to go public, with expectations low.

Instacart, which kicked off its I.P.O. pitch meetings this week by setting a price range that valued the company at $8.6 billion to $9.3 billion, counting all outstanding shares, is set to be valued far below its onetime valuation of $39 billion in the private market. Klaviyo started its pitch meetings with a valuation range of $7.7 billion to $8.3 billion, slightly below its last private valuation of $9.5 billion.

To instill confidence in the public offerings, many of the companies have tried reassuring Wall Street that they are desirable investments. Before its offering, Arm said it had lined up $735 million of “stated interest” in buying its shares from companies it works with, including Nvidia, Google, Samsung, Apple and Intel.

Arm on Thursday did not disclose additional details concerning those investments, but Taiwan Semiconductor Manufacturing Company said this week that its directors had approved an investment of up to $100 million in the offering.

Instacart made a similar move, selling $175 million of its I.P.O. shares to PepsiCo. Klaviyo also announced that it had secured the investment firms BlackRock and AllianceBernstein as “cornerstone” investors ahead of its offering. Trumpeting such commitments ahead of an I.P.O. is not as common in times when the market is flush, Mr. Hsu of Wharton said.

Arm, Klaviyo and Instacart have also drawn attention to their profits. Rising interest rates and inflation have made investors more risk-averse, with many shifting their priorities from fast-growing companies to those that can make money.

The profits contrast with the many cash-burning companies that went public in the boom times of 2021, which have since seen their stock prices plummet. Bird, a scooter company once worth $2.5 billion, has fallen to a valuation of $11 million. WeWork, the office sharing company that was valued at $40 billion on the private market, now trades at a market capitalization of around $270 million.

Maureen Farrell contributed reporting.