SoftBank's Arm Gears Up for the Largest IPO of 2023 Riding the AI Wave

Arm Ltd., a Cambridge, UK-based company, is set to make the biggest initial public offering (IPO) of 2023. Despite being relatively unknown to most consumers, Arm's products are integral to almost every smartphone in the world, giving the company enormous strategic importance in the technology sector. The IPO is expected to value the company between $50 billion and $60 billion, attracting major customers like Apple Inc., Nvidia Corp., and Samsung Electronics Co. as strategic investors. Arm designs core semiconductor components and licenses the blueprints, along with the fundamental code that allows software to communicate with chips. This business model brought in $2.68 billion of revenue in the fiscal year ending March 31, making Arm one of Britain’s largest technology companies. The company was acquired for $32 billion in 2016 by Japan’s SoftBank Group Corp., which delisted it from the London Stock Exchange. Masayoshi Son, SoftBank's founder, has regularly highlighted the potential for Arm’s future growth. If the IPO raises as much as $7 billion, it would make it not only the biggest IPO of 2023 but also the largest in the US since Rivian Automotive Inc.’s $13.7 billion offering in November 2021. Arm plans to reduce its reliance on the stagnating smartphone market by targeting customers that build chips for data centers. Its products are argued to be a better fit for power-hungry data centers running the latest generation of artificial intelligence platforms. Among public companies, Nvidia has been the main beneficiary of the current AI boom, with its market capitalization exceeding $1 trillion for the first time in May. Arm's instruction set is used in billions of devices, making the task of switching to another company's code daunting. Major tech names such as Amazon have designed their processors for data centers using Arm's blueprints, taking Arm into the most profitable part of the semiconductor industry. Arm's strategic importance is so great that when SoftBank decided to sell the company to Nvidia in 2020, it prompted an outcry from Arm’s customers that eventually led to the $40 billion deal being scrapped. SoftBank’s Plan B was to sell Arm shares in New York in an IPO. SoftBank is expected to list a minority stake in Arm in New York. Despite Arm’s British roots, SoftBank dropped the idea of a dual listing in London after the government was unable to provide a waiver on rules that would have made it difficult for SoftBank to transact without seeking shareholder approval. When SoftBank announced plans to take Arm public last year, the company was considering a valuation of about $60 billion for the business. However, when chip valuations fell, SoftBank decided to sell a smaller portion of Arm than previously planned and retain a controlling stake in the hope of obtaining a higher valuation for the remainder later. The recent rally in the benchmark Philadelphia Stock Exchange Semiconductor index, fueled by interest in AI, has provided a better environment for Arm to sell shares, although concerns about overproduction in the industry persist.