IPO first-day surge sets a positive tone for tech stocks, thanks to ARM

The stock price soared by 25% and the valuation approached $68 billion, achieving tremendous success on the first day of Arm's listing, which is expected to reignite the long-dormant IPO market for technology companies.

Since Rivian, an electric truck startup, raised $14 billion in November 2021, Arm's IPO is the largest in the United States. Since then, the US IPO market has dried up.

Many people have been hoping that Arm can break this curse.

Now, Arm lives up to expectations and sets a good example for technology stocks, bringing encouragement to dozens of technology startups and other companies planning to go public.

The valuation of $68 billion is $34 billion higher than the acquisition price paid by SoftBank for Arm in 2016, $25 billion higher than the acquisition price proposed by NVIDIA in 2020, and $1 billion higher than the valuation when SoftBank purchased 25% of Arm's shares from its Vision Fund in August this year. It is 125 times the profit of Arm last year.

Matthew Kennedy, an analyst at Renaissance Capital, a well-known hedge fund, said:

"As the largest technology stock IPO since Uber in 2019, Arm's strong debut is a shot in the arm for the technology stock IPO market."

In the past few months, Renaissance Capital has been predicting that the IPO market will gain momentum before the fall.

He said:

"I think we are seeing evidence of this."

Investors still need to keep a close eye

However, it should be noted that not all upcoming IPOs have the same appeal to investors.

Next week will bring another test as grocery delivery company Instacart and email marketing automation platform Klaviyo go public, with valuations reaching tens of billions of dollars for both companies.

In a financing round in 2021, Instacart was valued at $39 billion, but now its valuation has dropped significantly to about $9 billion.

Kennedy told the media:

"Although the tech market is rebooting, for now, most tech companies' IPOs will need to provide convincing growth, profitability, and valuation."

Unlike the upcoming series of IPOs, Arm is not a young or unknown tech company. It was founded in 1990 and is known for its energy-efficient chip designs, which have been used in mobile phones since the mid-1990s. The company's revenue for the fiscal year ending in March 2023 was $2.7 billion, the same as last year, but Arm believes it has potential for growth in artificial intelligence and machine learning because its processors can be designed to accelerate future AI application algorithms. Another company that may go public later this year is Reddit, known as the "Mecca for US retail investors." The company secretly filed for an IPO at the end of 2021, but its trading was put on hold due to the freeze in the IPO market.

Kennedy pointed out that the "drought" for venture capitalists may be coming to an end.

However, commentators argue that investors still need to study each prospectus and weigh the differences between young companies with greater potential for growth but also higher risks, and established companies like Arm that have slower growth.