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Securing a strong lineup of underwriters and cornerstone investors does not guarantee a successful initial public offering (IPO). Arm has experienced this first hand. The chip designer, owned by SoftBank, recently disclosed its target price range and valuation for the highly anticipated IPO. Despite a consortium of 28 supportive banks, the price has fallen short of expectations.
Arm aims to sell shares at a range of $47 to $51 per share, potentially raising $4.9bn and valuing the company at $52bn. While it will be the largest IPO this year, the valuation is significantly reduced from SoftBank’s internal transaction value of $64bn just a month ago.
During roadshows, initial price ranges are often conservative and can be increased through effective marketing. Therefore, Arm’s valuation may change before the final pricing next Wednesday. SoftBank still retains around 90% of the shares, allowing it to benefit from any post-listing share price increase.
However, it is unlikely that such a boost will occur. A valuation of $52bn, which is 99 times trailing net income, still appears expensive. Nvidia can justify its multiple of 275 times trailing profit due to the crucial role its chips play in artificial intelligence development and its projected revenue and profit growth. Based on 2025 consensus forecasts, Nvidia’s $1.2tn market valuation translates into 30 times earnings.
Arm, on the other hand, remains heavily reliant on the declining smartphone market. This is evident in its flat revenue growth and modest 6% increase in net income last year.
Lex suggests that a more appropriate enterprise value for Arm would be around $32bn, based on a broader industry earnings multiple. Arm’s pricing range may change before the listing, but it is unlikely to move in the upward direction that the company’s bankers are anticipating.
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