Is Participating in ARM’s IPO Worth the Hype?


The upcoming public offering of ARM Holdings is shaping up to be one of the most notable tech IPOs in recent times. With SoftBank at the helm, ARM’s IPO emerges in a market that has seen a lull in IPO activities. Analysts and investors alike are bustling with anticipation regarding the valuation of this event, yet potential red flags serve as a caution to those eagerly waiting to invest once it hits NASDAQ.

In this in-depth analysis, we’ll explore reasons that might urge cautious investors to consider sitting out the buzz surrounding ARM’s anticipated market debut. We assess the challenges and opportunities that ARM Holdings LTD faces in its march to the IPO stage, shunning the rose-tinted view that typically accompanies such events. 

Potential Perils of Investing in ARM’s IPO

The eminent British chip designer ARM Holdings embarks on going public, contending with a complex set of challenges. Prospective investors are advised to ponder the implications extensively before diving into the “How to invest in ARM’s IPO” frenzy. 

ARM’s Tense Ties with Its Chinese Business

A substantial slice of ARM Holdings’ revenue—a rough 25%—stems from China, marking it a significant market for the company. Yet, this puts ARM within the crosshairs of volatile economic and political climates in the region. Its IPO prospectus indicates problems with its Chinese subsidiary, ARM Technology (China) Co, and a potential loss of control over the unit.

ARM’s main customer in China and a gateway to the market, ARM China, operates outside the direct control of both ARM Holdings and SoftBank Group Corp. With local investors holding the reins—and embroiled in ongoing power disputes—the stability of ARM’s business in China is far from certain.

Moreover, initiatives to curtail China’s access to cutting-edge technology from the US and allies might affect ARM’s performance in the country. As a consequence, ARM has had to settle for selling less advanced chip architectures in China, which has hampered its royalty revenue growth.

The Influence of Key Clients on ARM’s Share Price

The company’s substantial dependence on a handful of customers puts its revenue stream at substantial risk. In its last fiscal year, just five customers, including ARM China, contributed to more than half of ARM’s total revenue. This narrow customer base poses significant challenges to the company’s future.

ARM stands in a peculiar situation, as it supplies chip technology to industry titans, yet by launching its IPO, finds itself in competition with them. The success of the ARM IPO depends heavily on their ability to maintain these client relationships while also carving out a niche for themselves in the stock market. Significant investment in R&D, particularly in the competitive data center sector, is also on the cards for ARM. 

Navigating the 2023 Tech IPO Waters with Anchor Investors

ARM’s market valuation hangs in the balance, with anchor investors ready to scoop up shares before the IPO launches. These investors, possibly giants like TSMC, Microsoft, Alphabet, Samsung, Apple, Nvidia, and Intel, will absorb about 10 to 50 percent of the offered shares.

However, these investors are typically subject to a lock-up period, where they cannot trade their shares for several months post-IPO, meaning market dynamics may not truly reflect their influence initially.

Estimating ARM’s IPO Valuation and Share Price

Current estimates place ARM’s valuation at a staggering $60 to $70 billion. Despite evident risks, the company’s confidence in its market standing, innovation, and growth outlook is evident. Yet a revelation of a shrinking revenue and decline in earnings casts a shadow over their ambitious market cap expectations.

As ARM’s IPO date nears, the tech and investing worlds watch keenly. The decision to invest will hinge on a judicious risk-reward analysis. Whilst there may be substantial gain, the associated risks should not be ignored. Assess the market, engage in due diligence, and decide: to invest or to abstain—what will your approach be?

Disclaimer: Always conduct thorough research and consider your financial goals before investing in securities.

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