ARM Holdings plc NASDAQ: ARM procesory - projektowanie i sprzedaż licencji

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In a recent development, SoftBank (TYO:9984) Group is set to benefit from a significant financial gain following the initial public offering (IPO) of Arm Holdings (NASDAQ:ARM), a leading chip-design company. Despite a recent dip in investor interest, SoftBank is poised to profit $5.12 billion from the 10% stake it sold in Arm as part of the IPO. This news was confirmed on Tuesday.

Earlier this week, Arm Holdings' shares experienced a slight decline, sliding back towards their opening price. The shares were trading down 2% at $56.85 in premarket trading on Tuesday. This drop comes after the shares initially soared over $65 per share following last Thursday's IPO. Nevertheless, the stock price remains above its initial pricing of $51 per share.

The successful IPO of Arm Holdings is expected to positively influence market sentiment regarding potential future listings. This development could provide a much-needed boost for SoftBank, which has suffered a series of significant losses through its Vision Funds business – the world's largest venture capital portfolio.

Amid these developments, SoftBank has expressed its intention to remain the long-term owner of Arm Holdings. The funds generated from the IPO will strengthen SoftBank's finances for further investment opportunities.

In line with this strategy, SoftBank appears to be swiftly advancing with new investments, particularly focusing on artificial intelligence technology. The company is leading a funding round for US-based location-mapping company Mapbox, worth $280 million and valuing the firm at around $1.3 billion. This move signals SoftBank's ongoing commitment to investing in innovative technology companies.

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Arm shares post third daily loss with IPO buzz fizzling, short sellers hovering

(Reuters) -Shares of Arm Holdings (NASDAQ:ARM) closed down 4.9% on Tuesday, in their third daily decline out of the stock's first four sessions as a listed company, as investor interest faded in the biggest initial public offering (IPO) for the year so far.

With short sellers looking to profit from the stock, it closed at $55.17 after touching a high of $69 on Friday. The chip designer, in which Softbank (OTC:SFTBY) holds a roughly 90% stake, closed at $63.59 on Thursday, which was almost 25% higher than its IPO price of $51.

Arm shares underperformed the Philadelphia semiconductor index, which closed down 0.96% on Tuesday as rising bond yields weighed on growth sectors such as technology.

Investors were also monitoring grocery delivery service Instacart, another high-profile IPO, which ended its debut session at $33.70, roughly 12% above its $30 IPO price.

On Tuesday, Redburn Atlantic, an equity research and trading company, launched coverage of ARM with a "neutral" rating and a $50 price target, arguing that recommending ARM at current valuations would require "higher conviction in a multi-year earnings acceleration from a weak (full year 2023) base."

While bullish investors are pinning their hopes for the stock on demand tied to a surge in interest in artificial intelligence (AI), Daniel Morgan, portfolio manager at Synovus (NYSE:SNV) Trust in Atlanta, said he needed more proof.

"People are sobering up a little bit from the initial excitement," said Morgan, whose company holds shares in Nvidia (NASDAQ:NVDA) but has not invested in Arm.

"My biggest concern is valuation and the fact that everyone is buying ARM because it's a huge AI play in the eyes of investors. It does benefit from AI but it's not Nvidia," said the money manager. "We don't have any direct evidence at this point that ARM has been directly positively impacted by AI like we have from Nvidia."

Thomas Martin, senior portfolio manager at GLOBALT Investments, Atlanta, said some initial volatility was to be expected with a new asset on the market.

But when the excitement dies down, he said, "it will go back to the metrics that are associated with its end markets and its end users."

Data from analytics company Ortex on Tuesday suggested that short sellers had started taking bets against Arm stock, with slightly more than 5 million shares of the newly listed chip designer "on loan," or 2.7% of the stock's free float. Short sellers need to borrow a stock to short it, and the relationship between shares on loan and shorted is normally quite close, according to Ortex. Initially with a new stock "there is often a lot of data missing, so there is a reasonable expectation that the real number is higher," Ortex co-founder Peter Hillerberg said in an email. Arm's average cost to borrow, which is the interest rate for borrowing, is currently at 12.76%, according to Ortex. By comparison, Tesla (NASDAQ:TSLA), a stock with a similar percentage of shorted shares, has a cost to borrow at 0.48%, Ortex said. Arm's higher cost to borrow "can be an indication that the demand to borrow, and short, the stock is high," Hillerberg said.

Analysts from Bernstein and Needham in recent days had published less than optimistic notes about the chip technology company and options on the stock starting trading on Monday at a brisk pace, with many investors positioning for further downside.

Late on Monday, Arm announced that its underwriters had exercised their full over-allotment option to buy an additional 7 million American depository shares (ADSs), boosting the total raised from the IPO to approximately $5.2 billion.

Another IPO on the cards is marketing automation company Klaviyo Inc, which is considering pricing its offering at the top of its indicated price range or just above it, according to people familiar with the matter. That IPO is expected to be priced on Thursday evening.

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Semiconductor firm Arm Holdings (NASDAQ: NASDAQ:ARM), which recently went public, has received bullish ratings from several major financial institutions despite an initial 8% drop in its share price since its debut. Analysts from Guggenheim, Citi, JPMorgan, Bank of America, and Barclays have all issued favorable assessments of the company's prospects.

On Monday, JPMorgan's Harlan Sur launched coverage on Arm Holdings, issuing an "overweight" rating that exceeds the consensus moderate-buy from 19 reviews. Sur's target for the stock is set at $70 per share for the next year, signaling a potential 29% surge. This optimistic outlook is underpinned by an anticipated revenue compound annual growth rate (CAGR) of over 18% and a 40% EPS CAGR over three years. Other contributing factors include expected market share gains against proprietary systems and a strategic push into high-growth areas such as automotive, IoT, and data center computing.

Bank of America and JP Morgan have also set price targets of $65 and $70 respectively for Arm Holdings. They pointed out the company's unique advantage resulting from increasing complexity in semiconductor design and solid revenue visibility due to its new revenue model focusing on the average selling price of the actual device. They also emphasized Arm's pricing power and potential in the cloud and automotive sectors.

Citi analysts highlighted Arm's rapid sales growth and long-awaited share gains in servers, which they believe warrant a premium valuation. Despite acknowledging risks such as exposure to China, ongoing litigation with Qualcomm (NASDAQ:QCOM), SoftBank (TYO:9984)'s 90% ownership potentially causing volatility, and mixed reception by investors, they noted the company's strong reception on Wall Street and predicted rising royalty rates and licensing agreements as positive signs.

Since its $54 billion IPO in September, Arm's stock has registered a slight uptick. The company's strategic push into high-growth areas like auto, IoT, and data center computing is expected to fuel its performance in the coming years.

InvestingPro data shows that Arm Holdings has a market cap of 1030M USD and a negative P/E ratio of -3.44. It's worth noting that the company's revenue growth has been impressive, with a 53.79% increase in the last twelve months (LTM2023.Q2). However, the company has been dealing with a declining trend in earnings per share, as indicated by the negative basic EPS of -5.58 USD (LTM2023.Q2).