Arm rings Nasdaq opening bell to mark stock market float
Over in New York, executives from UK chip designer Arm have just rung the Nasdaq opening bell, to mark its stock market flotation.
Cambridge-based Arm, owned by Japanese giant Softbank, is joining the US stock market with a valuation of around $52.3bn.
Last night it priced its shares at the top of its expected range, $51 each, having seen strong interest from investors.
This makes Arm’s float the biggest IPO of 2023 so far – in a year when flotations have been relatively rare, due to market volatility.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says all eyes in the equities world are on Arm today as it goes public, adding:
The company set its IPO price to $51 a share. It’s at the top end of the proposed price range, but still lower than the valuation of $64bn when Softbank bought out a stake from Vision Fund.
Key events
Here are the key points on today’s Arm stock market flotation, from Josh Warner, market analyst at City Index:
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The Arm IPO was priced at $51 per share, giving it a $54.5 billion valuation.
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Current owner Softbank has listed less than 10% of Arm’s float, and a large chunk of this is expected to have been snapped-up by major tech companies that are Arm customers.
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Based on its most recent annual earnings, Arm is coming to market with a valuation multiple of around 98x – three-times the average on the Nasdaq 100.
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Arm shares are rising in initial trade but are proving volatile.
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Arm is underpinning its valuation on new prospects stemming from a shift in strategy that will see it design more comprehensive, advanced and financially-rewarding chips rather than the business as it is today.
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Rising US-China tensions may cause concern for Arm as it threatens to disrupt its second largest market.
Following a heavily oversubscribed IPO, ARM has started its first day of trading with a bang, says Ben Barringer, equity research analyst at Quilter Cheviot.
This will delight Softbank, which still owns around 90% of Arm, and also the cornerstone investors from the big tech world who have backed the IPO.
Barringer adds:
“Now much of this is clearly hype and a bit of market froth, particularly as it has been starved of high profile IPOs in recent years. But with interest rates seeming to have peaked, growth companies are coming back into vogue at a time when artificial intelligence threatens to change the world as we know it.
With only 10% of the company up for grabs in this IPO, pricing in the early stages will be quite volatile, so we won’t know the true value for some time. For example, ARM’s Q3 results won’t be until 14th November. However, investors, and especially those in big tech, clearly recognise ARM’s unique status. Its licensing and royalty business model gives it clear sight of its earnings and will sustain it even in difficult environments. Not only that, it has invested heavily and diversified its offering since being acquired by Softbank and has also continued to have an entrenched and dominant position in smartphone processors.
Expectations are big for Arm, though, and growth is expected to accelerate quickly in 2024.
Barringer explains:
Margins could go as high as 60% in the long-term if it can continue to grow its market share, expand its offering and increases its royalty rates.
“There are clearly risks around ARM China and the Softbank’s 90% stock overhang. However, this is a strong start and will be a key indicator for more tech firms looking to come to the public markets. ARM will be the story to watch for the rest of the year and beyond.”
Arm’s shares are racing higher on the Nasdaq – they’re now up 20%, at over $61 per share.
Arm shares jump 10% at the open
Newsflash: shares in Arm have opened sharply above the chipmaker’s IPO price, as Wall Street traders scramble for a piece of the UK chipmaker.
Reuters reports that Arm Holdings have opened at $56.10 each in its Nasdaq debut, a day after owner Softbank sold shares at $51 each.
That’s an increase of 10% on the IPO price, which was itself at the top of Softbank’s range, and valued the company at over $52bn.
Today’s opening price values Arm at $57.5bn, by my maths.
This strong interest is partly because Softbank, which acquired Arm in 2016, is only floating around 10% of the business on the US stock market.
$ARM HOLDINGS OPEN AT $56.1 EACH IN NASDAQ DEBUT VS IPO PRICE OF $51 EACH.
— Axel Karlsson (@NordnetAxel) September 14, 2023
My colleague Hibaq Farah writes:
The chip designer predicts on its website that 70% of the world’s population use Arm-based technology. Without its designs, the iPhone and other smartphones would not work. The global chip powerhouse employs more than 5,000 people.
Arm’s valuation is exceedingly high for a chip company when compared with other firms in its market, other than semiconductor-maker Nvidia, which is worth more than $1tn.
A billboard at the Nasdaq stock market is showing information about Arm Holdings’ initial public offering today:
Arm Holdings $ARM is currently indicated to open trading today at $57 above its IPO price of $51
— Evan (@StockMKTNewz) September 14, 2023
FTSE 100 jumps 1.95%, best day of 2023
Newsflash: The UK’s blue-chip stock index has just posted its best day of the year so far.
The FTSE 100 index has closed 147 points higher at 7673 points, a gain of 1.95%.
That’s its biggest percentage jump since last November, and takes the Footsie to its highest closing level since the start of August.
The rally was led by mining companies such as Anglo American (+7.7%), Rio Tinto (+4.7%) and Glencore (+4.3%).
Shares soared today after China’s central bank cut the amount of cash that Chinese banks must hold as reserves, in an attempt to stimulate lending and support economic growth.
Investors were also cheered by hopes that the European Central Bank may have finished raising eurozone interest rates, following today’s hike.
Arm’s flotation (once its shares actually start trading…) will set the tone on Wall Street, points out New York Times writer Erin Griffith:
Chipmaker Arm is the Punxsutawney Phil of IPOs – if its listing goes well, early spring for tech companies. If not, the market stays frozen. (I can’t believe they let me print that dumb metaphor in the New York Times!) pic.twitter.com/Rtni13Z2ru
— erin griffith (@eringriffith) September 14, 2023
Heads up, $ARM officially set to being trading any minute now.
Looks like some investors aren’t receiving their full allocation of shares from select brokerages, likely signaling strong demand. pic.twitter.com/pYsoZQmvRq
— Stocktwits (@Stocktwits) September 14, 2023
Arm Holdings indicated to open at $58/share
Arm shares are on track to jump sharply, as they make their debut on the tech-focused Nasdaq index today.
Reuters reports that Arm Holdings shares are currently indicated to open at $58.01.
That would be a 13% increase on the $51 per share which investors bought stock in its IPO.
The ECB is walking on “a very treacherous path right now”, warns Clémence Dachicourt, senior portfolio manager at Morningstar Investment Consulting France.
Economic growth in the Euro-zone has come to a halt, expectations for future growth prospects are bleak, yet core inflation remains stubbornly high and way significantly above the central bank’s 2% target.
While this draws the effectiveness of the ECB’s rate hikes into question, the central bank will certainly want to avoid errors of the past when it decided to raise interest rates in July 2008, at the same time as the global economy was heading into one of the biggest financial crises, or again in 2011 just before the Eurozone crisis.
Going forward, the European Central Bank may decide to be more considerate about underlying economic growth and pause interest rate hikes to avoid precipitating the zone into a deep recession.”
The euro continues to lose ground against the US dollar, now down three-quarters of a cent at $1.066.
So @ecb raises interest rates and the euro depreciates. Because it is hiking into a recession (again)? Or because this was the last interest rate hike and the next move is down, whenever it comes? Views? pic.twitter.com/DOuqvPc7wL
— Stefan Gerlach (@HmsGerlach) September 14, 2023
Not that unusual I think. Markets price currencies off interest rate differentials, which go out the curve and thus embed expectation for cuts. The fall in the Euro is basically saying this rate hike is mistake, a case of overtightening. You know my feelings on the Euro…
— Robin Brooks (@RobinBrooksIIF) September 14, 2023
Abrdn: ECB are continuing to hike rates into a recession
The European Central Bank is raising interest rates into a recession, fears Felix Feather, economic analyst at investment company abrdn.
Feather explains:
The decision comes despite very weak activity data in recent months. It is our belief that the ECB are continuing to hike rates into a recession that is probably already underway. The latest hike could make this downturn deeper and the recovery slower. Despite losing out in the rate decision, it appears the bank’s doves were able to secure a dovish framing in which the hike was delivered. Indeed, it appears the bank now considers its hiking cycle over (barring any big surprises).
We think this will indeed be the final rate hike of this cycle. However, we do expect cuts in 2024 when the effects of the upcoming recession on the labour market and consumer prices become apparent.”
Today’s ECB interest rate rise is a “dovish hike”, declares Mohit Kumar, chief European economist at Jefferies.
Kumar explains:
The statement reads like a one and done hike from the ECB.
Key statement change suggests that Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.
Growth forecasts were lowered and more importantly inflation forecasts were lowered for 2024 and 2025.
But, Jeffferies does not predict interest rate cuts anytime soon, indeed not until the second half of next year.
Kumar adds:
We believe rate cuts will be a H2 24 story.
Arm rings Nasdaq opening bell to mark stock market float
Over in New York, executives from UK chip designer Arm have just rung the Nasdaq opening bell, to mark its stock market flotation.
Cambridge-based Arm, owned by Japanese giant Softbank, is joining the US stock market with a valuation of around $52.3bn.
Last night it priced its shares at the top of its expected range, $51 each, having seen strong interest from investors.
This makes Arm’s float the biggest IPO of 2023 so far – in a year when flotations have been relatively rare, due to market volatility.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says all eyes in the equities world are on Arm today as it goes public, adding:
The company set its IPO price to $51 a share. It’s at the top end of the proposed price range, but still lower than the valuation of $64bn when Softbank bought out a stake from Vision Fund.
Today’s eurozone interest rate rise is the tenth consecutive time the ECB has tightened monetary policy. points out Victoria Scholar, head of investment at interactive investor.
She adds:
Meanwhile the central bank issued some gloomy forecasts on the economy, cutting its 2023-24 growth outlook and raising its inflation guidance for next year, suggesting price pressures will take longer to shake off than previously anticipated. Inflation is expected to be at 5.6% in 2023, 3.2% in 2024 and finally around target at 2.1% by 2025.
The ECB began tightening later than the Fed and the Bank of England, landing it behind the curve, which forced the central bank into acting more swiftly. But that aggressive policy has had consequences for the euro zone economy with Germany potentially heading into a recession. With sluggish growth and increased labour market slack, the more dovish ECB rate setters believed a pause would have been more appropriate, but the governing council decided to prioritise tackling inflation, even if it comes at a cost to the economy. Looking ahead, the recent rally in oil prices is likely to muddy the picture for the ECB by standing in the way of the eurozone’s disinflationary path.
Government bond yields in the euro zone fell despite another hike from the ECB. Price action in the bond market reflects the ECB’s signalling that it is probably at the end of this tightening cycle, even though inflation for August hit 5.3%, still sharply above its 2% target.
ECB President Lagarde said she expect inflation to fall in the coming months. And no doubt the governing council is also worried about a significant slowdown in the euro zone economy, given the weakness in recent indicators.”
