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August 23, 2023updated 24 Aug 2023 11:22am

Arm IPO success hinges on AI push, expert warns

SoftBank hopes to achieve a $64bn valuation from its listing of Arm on the Nasdaq exchange.

By Ryan Morrison

Arm needs to be seen as an AI company if owner SoftBank wants to hit its $64bn valuation target from the IPO on the Nasdaq stock exchange next month, according to GlobalData. In a press release published earlier today, GlobalData analyst Mike Orme said that the British semiconductor manufacturer “focusing solely on AI will override the problems of the marked slowdown in the smartphone market”. It comes as Nvidia once again saw a spike in its share price as it reaps the benefit of demand for AI compute power.

Arm was listed on the London Stock Exchange and Nasdaq from 1998 until 2016, when the business was acquired by the Japanese financial institution SoftBank for $32bn. The latter subsequently attempted to sell Arm to Nvidia for $40bn, but this deal fell through last year when the chip giant walked away after regulatory opposition. Softbank’s decision to list Arm on the New York-based Nasdaq instead of the London Stock Exchange was widely seen as a blow for UK tech when announced in March.

SoftBank is aiming for a $64bn valuation following the IPO listing on the Nasdaq next month (Photo: Ascannio / Shutterstock.com)
SoftBank is aiming for a $64bn valuation following the IPO listing on the Nasdaq next month. (Photo by Ascannio/Shutterstock)

Arm-designed CPUs are included in smart devices, a growing number of laptops, vehicles and almost every smartphone on the planet. Companies like Apple and Qualcomm also use the Cambridge company’s architecture in their own chips that, in turn, are increasingly playing a part in some of the world’s fastest supercomputers.

Arm’s upcoming IPO will see SoftBank list 10% of the business on the Nasdaq exchange in New York. Major Arm customers, including Apple, Samsung and Intel, are likely to attempt to expand their stakes in the firm. Apple has invested heavily in Arm-built silicon chips across its entire product range, including within its Mac and iPad devices. Samsung, meanwhile, is thought to want to reduce the cost of its smartphone production and build closer ties with the company.

Sluggish smartphone market

Orme is of the view that outside the big players competing for a greater say in the Arm operation, hitting the massive $64bn valuation will rely on the British semiconductor company publicising its AI credentials. While traditionally AI training has been done on GPUs, companies like Qualcomm and Apple are also building AI engines into Arm-based silicon to run those complex models once that training has been completed. “Softbank’s filing for the Arm IPO mentions AI 47 times but fails to make a genuine case that Arm is an AI company in the same league as Nvidia,” said Orme. “However, if CPUs are used more widely than GPUs in end-user devices such as smartphones to run AI models, Arm could score heavily in AI.”

The analyst also argued that the current market is not in the best shape for a high-profile IPO, beset as it is by sluggish smartphone sales, new restrictions on Chinese chips imposed by the US and its allies, and the dominance of Nvidia in the AI market. Additionally, big investors will also be weighing up the impact of open-source RISC-V instruction set architectures that could pose competition for Arm in the smartphone chip market.

“RISC-V is catching on fast,” said Orme. “Nasa, for example, is committed to using RISC-V-based processors in its next high-performance space flight system, while Apple is shifting components of its mobile system-on-a-chip family to RISC-V. The Chinese have also bought into it, mainly for geopolitical reasons.” 

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Even so, the market for chips that can run AI models continues to grow. Nvidia, for example, has achieved a trillion-dollar valuation from the benefits of its early investments in AI and has seen a growing demand for its stock, up 24.4% since its last earnings report. 

Read more: Nvidia launches GPU server platform as its value tops $1 trillion

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