SoftBank acquired Arm for $32B in 2016; Arm sold its China JV stake in 2019; NVIDIA planned a $40B acquisition of Arm (excl. IoT business) in 2020, subsequently met with named opposition from a host of US tech companies including Google, Microsoft, and Qualcomm; the deal was terminated in 2022, with NVIDIA recording a $1.357B charge, causing Q1 earnings to plunge.
Today Arm IPO priced at $51/share, implying a valuation of ~$54.5B, with oversubscription exceeding 10x, far hotter than market expectations.
There isn't much more to say on Arm at this stage; the views are all in the 2020 piece "NVIDIA Acquires Arm, How to View It?".
At the time we thought: "Perhaps when SoftBank acquired Arm they had a beautiful vision, collecting 'tax' while lying down is a good business, and gross margins are super high. But after SoftBank acquired Arm, only one full fiscal year was profitable, and that was due to proceeds from selling 51% of Arm China. Even putting aside profitability, Arm's revenue growth is hard to justify given its monopoly position."
Now? The historical financial data disclosed in this prospectus is quite limited, but based on Arm operating data disclosed in SoftBank Group quarterly reports (excl. IoT business), Arm is still 'all hat, no cattle' as before. Even with gross margins reaching an exaggerated 96%, operating margin hovers around 25% (still an operating loss per SoftBank disclosed data). Then there's the slow revenue growth, especially with annual revenue still under $3B. Now there's the added risk of the Arm China and Qualcomm dispute.
Data Sources:
SoftBank
Group financials - Arm business
What's next? Compared to semiconductor SaaS stocks like SNPS (P/S TTM 13x) and CDNS (P/S TTM 17x), Arm's valuation is a bit rich (P/S TTM 20x). I personally think future Arm growth still depends on Arm server CPU market penetration ramping.
Arm is certainly a good company, but investment value remains to be observed. As the flag-bearer for Arm server CPU, NVIDIA Grace CPU's market performance may be a very important bellwether.