If ever a float could be said to test current market conditions, it may be that of Arm, the SoftBank-owned British chip designer that has “started the countdown” for a Nasdaq IPO in early September, said the FT.
It promises to be the biggest US listing in two years, valuing the Cambridge-based company at around $64bn. Chip stocks have rebounded sharply this year on the back of “the AI wave”, said Jacky Wong in The Wall Street Journal. And Arm can boast that its designs go into “almost every smartphone” on the planet. Even so, it is coming to market at a “lofty valuation”.
‘A useful stress test’
The bull case rests on the hope that it can extend its reach into the central server processors that power AI applications – and thus “experience the same sort of explosive growth as Nvidia”, whose valuation shot through $1trn in May. But the crucial question is whether investors will “pay up” for these prospects. “The Arm IPO is shaping up as a useful stress test for all the rosy assumptions” baked into the AI rally.
There are other issues, said Katie Prescott in The Times. As Arm’s filing documents make clear, it is worryingly exposed to an “unpredictable China”, which accounted for a quarter of revenues in the year to March. The Biden administration’s crackdown on Chinese access to US tech and investment doesn’t help. But Arm’s problems extend far beyond the standard geopolitical headwinds facing strategic industries. It is also “at the mercy of a Chinese entity it does not own”.
‘Latest blow for London Stock Exchange’
The UK company’s single largest customer is “Arm China” – yet it has no control over its Chinese namesake. A “farcical episode” last year highlighted the potential for mischief when the latter’s CEO, Allen Wu, “was fired but refused to leave”. As the filing notes admit, even the name could prove an issue.“Although Arm China operates independently of us, [it] uses our trademarks in its marketing and branding” – meaning “our own brand and reputation may suffer significant damage” if “Arm China’s actions are imputed to us”.
For all these potential problems, there’s still “much lament” in the City that London has missed out on the world’s biggest listing this year, said Swetha Gopinath and Kit Rees on Bloomberg. “It’s the latest blow for the London Stock Exchange, which has seen more companies quit than join” this year, “and whose indexes lag behind European and US peers”. Indeed, 2023 could prove “the worst for UK listings since the global financial crisis”. We are seeing what one analyst calls a “worrying de-equitisation across the London market”. Whatever the fortunes of Arm next month, its loss to New York is symbolic.