Arm Shares Surge 25% as Valuation Crosses $72 Billion

Arm's Share Price Surges 25% as Valuation Crosses $72 Billion

Key Insights

  • Arm Holdings has seen a 6% rise in its stock value in U.S. pre-market trading after its successful Nasdaq debut.
  • Initially valued at $54.5 billion during its IPO, Arm now commands a valuation exceeding $72 billion
  • Despite some reservations, Arm attracts significant demand, secures investments from industry giants like Apple and Nvidia.

Arm Holdings, the British chip designer, has seen its stock surge by another 6% during U.S. pre-market trading on Friday, extending its momentum following its recent Nasdaq debut earlier in the week.

Arm’s share price pushes valuation above $72 billion

As of 6:10 a.m. ET, Arm’s shares were trading just above $67, implying a total market valuation in excess of $72 billion. It’s worth noting that Arm’s share price had climbed even higher earlier but experienced a slight pullback later.

This impressive performance comes on the heels of a remarkable 25% surge in Arm’s share price on its debut day of trading the previous Thursday.

Originally priced at $51 per share for its blockbuster Initial Public Offering (IPO), this valuation had pegged the company’s worth at around $54.5 billion.

What’s particularly noteworthy is that Arm is now trading at a premium compared to the chip industry giant, Nvidia, despite encountering some growth challenges.

A few analysts have voiced concerns about the company’s valuation.

Ben Barringer, an equity research analyst at Quilter Cheviot, shared his insights on this matter, saying,

The pricing is expensive… I think a lot of investors are adopting a wait-and-see approach to gauge how well Arm executes on its growth drivers, during an appearance on CNBC’s “Squawk Box Europe.”

Softbank’s strategy

Softbank, which acquired Arm in 2016, floated approximately 10% of the company in its recent IPO, retaining a significant 90% ownership stake.

However, Softbank has faced scrutiny over its investment strategy, especially considering the substantial losses reported by its Vision Fund tech investment arm in the previous fiscal year. These concerns have dissuaded some investors from participating in the Arm IPO.

William de Gale, a portfolio manager at BlueBox Asset Management, explained their decision not to invest in Arm, stating,

In the end, we decided that we were too worried about corporate governance with Softbank still controlling the company with a questionable record for asset allocation.

De Gale made these remarks during an interview on CNBC’s “Street Signs Europe” on Friday. He expressed the intention to observe how Arm operates as an independent business from the sidelines.

Nevertheless, there was significant demand for Arm’s shares, with reports preceding the IPO indicating that it was heavily oversubscribed multiple times.

Arm, whose chip architecture features in 99% of the world’s smartphones, successfully attracted strategic investors such as Apple and Nvidia to purchase shares during the IPO.

Read also! Analysts Foresee Nvidia’s Revenue Soaring to $300 Billion by 2027

This week, much attention has been focused on the risks associated with the company, including its exposure to the Chinese market and heightened competition from a rival semiconductor architecture supported by some of Arm’s major customers.

Arm’s CEO, Rene Haas, sought to address these concerns during a CNBC interview on Thursday. He emphasized that the company’s business in China was performing well, with promising potential in data centers and automotive applications.

Traditionally strong in smartphones and consumer electronics, Arm is now venturing into new areas, including artificial intelligence, in its pursuit of continued growth. Haas stated,

We diversified our business. We’ve got significant growth in the cloud data center and in automotive.

Samson Ononeme

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