Arm CEO Rene Haas and executives cheer as Softbank’s Arm, a chip design company, conducts an initial public offering on the Nasdaq MarketSite in New York on September 14, 2023.

Brendan Mcdermid | Reuters

Arm Holdings, the chip design company controlled by SoftBank, rose nearly 25% in its first day of trading on Thursday after selling shares at $51 apiece in its initial public offering.

When it opened, Arm was valued at nearly $60 billion. The company, which trades under the ticker symbol “ARM,” sold about 95.5 million shares. SoftBank, which took the company private in 2016, controls about 90% of the outstanding shares.

On Wednesday, Arm valued the stock at the high end of its expected range. On Thursday, the stock initially traded at $56.10 and ended the day at $63.59.

It’s a hefty bonus for the British chip company. At a valuation of $60 billion, Arm’s price-to-earnings ratio based on last fiscal year’s earnings would be over 110. That’s comparable to Nvidia’s valuation, which trades at 108 times earnings, but excluding Nvidia’s 170% growth forecast for the current quarter.

Jason Child, Arm’s chief financial officer, said in an interview with CNBC that the company is focused on increasing royalties and providing its customers with products that cost more and do more.

Many of Arm’s royalties come from products that came to market decades ago. About half of the company’s licensing revenue, which totaled $1.68 billion in 2022, comes from products released between 1990 and 2012.

“As a CFO, it’s one of the better business models I’ve ever seen. I sometimes joke that these older products are like the Beatles catalog, they just keep delivering royalties. Some of these products are three decades old,” Child said.

In a presentation to investors, Arm said the overall market for its chip designs will be worth about $250 billion by 2025, including growth in chip designs for data centers and cars. Arm’s revenue fell less than 1% year-over-year to $2.68 billion in the fiscal year that ended in March.

Arm’s architecture is used in almost every smartphone chip and describes how a central processor works at its most basic level, such as when computing or accessing computer memory.

Child said the company sold $735 million worth of shares to a group of strategic investors consisting of Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company. This is a testament to Arm’s influence among chip companies that rely on Arm’s technology to design and manufacture their own chips.

“There was interest in buying more than indicated, but we wanted to make sure we had a diverse group of shareholders,” Child said.

In an interview with CNBC on Thursday, SoftBank CEO Masayoshi Son emphasized how Arm’s technology will be used in artificial intelligence chips as he seeks to tie the company to the recent boom in AI and machine learning. He also said he wanted to keep the remaining Arm stake in the company for as long as possible.

The debut could open up the market for technology IPOs that has been on pause for nearly two years. It is the biggest technology offering of 2023.

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