Largest IPO of 2023 Incoming: Arm Wants to be Like Nvidia

Arm, one of the world’s most valuable semiconductor companies, is expected to go public on the Nasdaq next month — seeking a reported $60B-70B valuation. And this one might cost you an arm and maybe even both legs.

This is the same company Nvidia (NASDAQ:NVDA) tried to buy in 2021 but was ultimately blocked by regulators. Arm powers 99% of the world’s smartphones, so this is a big one to watch…

• Arm is set to be the largest IPO in 2023 — and the biggest tech offering since Alibaba in 2014.
• Its success could trigger a dash for others waiting to go public (like Instacart, which is reportedly planning to go public next month, details not out yet).

Here’s what investors should watch for:

1/ Two letters: A + I. In June, SoftBank — which owns a major stake in Arm — began pitching it as an AI company — saying “85% of SoftBank Group assets are AI-related companies overseas.” Problem is, Arm is no Nvidia. While Nvidia designs the chips crucial to running AI models, Arm mostly operates in the smartphone market. And analysts have warned that Arm isn’t at the center of AI — but instead is “AI-adjacent” (Reuters).

2/ Valuation (it’s expensive): Price matters, and if you think Nvidia is expensive after having risen over 210% YTD, just wait until you see Arm’s valuation. Having made $2.7B in sales last fiscal year — Arm would be trading at an eye-popping 26x trailing price-to-sales ratio — compared to Nvidia’s 23x. Final valuation TBD.

3/ “Significant” China risk: And it’s such an important one that Arm used over 3.5K words in its IPO filing to highlight it. Arm is heavily reliant on China, which makes up ~25% of its sales — and the ongoing trade war that’s impacted chip exports between China and the US isn’t doing it any favors. Its ownership structure also gets complicated — as Arm China has the exclusive right to sell to Chinese customers.

AI watch: Nvidia releases earnings today after market close. Just how crazy will the post-market move be?