After remaining dormant for nearly 1½ years, the initial public offering (IPO) landscape is heating up as chip manufacturer Arm Holdings Ltd. plans for a multibillion-dollar listing. 

The British semiconductor designer, owned by Japanese investment holding company SoftBank Group, filed an application on Aug. 21 to list its shares on the tech-focused Nasdaq Stock Exchange in the U.S. The move places the company in a position to become publicly traded at a time when tech IPOs have been sluggish. 

Arm plans to raise between $8 billion and $10 billion from its IPO, giving it a valuation of $60 billion to $70 billion, according to reports. Slated to begin trading by September, Arm is poised to be one of the biggest IPOs in 2023 globally. 

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Capitalizing On The Semiconductor And AI Boom 

The semiconductor industry has remained resilient amid the continued tech rout over the last couple of years because of the heightened demand for chips created by the COVID-19 pandemic. Capitalizing on this trend, Arm quickly became an important player in the space, thanks to its licensing business.  

The AI boom has propelled rivals like Nvidia to astronomical heights. Nvidia Corp. is currently sitting at a $1.23 trillion market capitalization and up nearly 350% in the past ten months. Despite only roughly $32.5 billion in revenue in the past 12 months, optimism around artificial intelligence has propelled the company to a valuation of 38x the previous 12 months’ revenue.

Second IPO Rodeo 

This isn't the first time Arm has gone public. After its founding in 1990 as a joint venture, the company launched an IPO in 1998 and was traded on the London Stock Exchange (LSE) for 18 years before SoftBank acquired it for $32 billion in 2016. 

SoftBank had planned to sell Arm to U.S.-based chipmaker Nvidia in 2020 for $ 40 billion, which would have been one of the most significant deals in the semiconductor industry. But the acquisition was scrapped in 2022 because of "significant regulatory challenges," as the Federal Trade Commission (FTC) sued Nvidia to block the merger. Arm also faced substantial regulatory pressure from British authorities. 

Nonetheless, SoftBank's decision to list Arm in the U.S. has been a setback for the LSE, which competes with the U.S. market.

"There was a difference between the demands of a listed company in the U.K. versus a listed company in the U.S., and that was one of the rationales why ultimately Arm chose to go to the U.S.," LSE CEO Julia Hoggett said. 

Rising costs and supply headwinds are the major reasons behind Arm's decision to go public.

"Resources required to develop leading-edge products are significant and continue to increase exponentially as manufacturing process nodes shrink," the company stated.

SoftBank will retain a majority stake in the company, according to the filing. 

"As long as SoftBank Group controls us and/or is entitled to certain rights under the Shareholder Governance Agreement, other holders of our ordinary shares and ADSs will have limited ability to influence matters requiring stockholder approval or the composition of our board of directors," Arm stated.

Strong Financials 

Arm dispatched more than 30 billion chips in its fiscal 2023, which ended in March, according to a disclosure. The company traditionally receives a fee for each chip that integrates its technology and is shipped.

Banking On Artificial Intelligence 

"The CPU is vital in all AI systems, whether it is handling the AI workload entirely or in combination with a coprocessor, such as a GPU or an NPU (neural processing unit)," Arm reported in its filing.

Arm is entering the market when investor interest in next-generation semiconductors is surging because of demand fostered by artificial intelligence. The popularity of generative AI applications has sparked enthusiasm. 

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