15 September 2023
If you are covering ARM’s launch on the Nasdaq 10% above its IPO price, please find a comment from Ben Barringer, equity research analyst at Quilter Cheviot:
“Following a heavily oversubscribed IPO, ARM has started its first day of trading with a bang. Shares are up considerably, and will delight not only Softbank, but also the cornerstone investors from the big tech world, who are having somewhat of a comeback in 2023.
“Now much of this is clearly hype and a bit of market froth, particularly as it has been starved of high profile IPOs in recent years. But with interest rates seeming to have peaked, growth companies are coming back into vogue at a time when artificial intelligence threatens to change the world as we know it.
“With only 10% of the company up for grabs in this IPO, pricing in the early stages will be quite volatile, so we won’t know the true value for some time. For example, ARM’s Q3 results won’t be until 14th November. However, investors, and especially those in big tech, clearly recognise ARM’s unique status. Its licensing and royalty business model gives it clear sight of its earnings and will sustain it even in difficult environments. Not only that, it has invested heavily and diversified its offering since being acquired by Softbank and has also continued to have an entrenched and dominant position in smartphone processors.
“However, expectations are big for the company, and while growth will be low this year, it is expected to accelerate quickly in 2024. Margins could go as high as 60% in the long-term if it can continue to grow its market share, expand its offering and increases its royalty rates.
“There are clearly risks around ARM China and the Softbank’s 90% stock overhang. However, this is a strong start and will be a key indicator for more tech firms looking to come to the public markets. ARM will be the story to watch for the rest of the year and beyond.”
