ARM's Blockbuster IPO: $65 Billion Valuation Shakes Up the Chip Industry

ARM, the firm behind the chip designs that power everything from iPhones and smart speakers to televisions and smartwatches, has made a triumphant debut on the Nasdaq. The chip design behemoth went public at a valuation of $65 billion, nearly 25% higher than its opening price. This move comes after the company extricated itself from the protective umbrella of Japanese tech giant SoftBank. The valuation significantly surpasses its previous estimate of $54.5 billion.

SoftBank had initially acquired ARM for $32 billion, taking it private. The IPO follows a failed $40 billion acquisition attempt by Nvidia, the world's most valuable semiconductor company, which was thwarted by regulatory obstacles in the United States, China, and the European Union. SoftBank, which previously held ARM through its Vision Fund, now directly owns a 25% stake in the company.

ARM's chip designs are ubiquitous. They are found in nearly every smartphone, television, and a range of IoT devices and smartwatches. The company's focus on performance per watt has also led it to gain traction in the automotive sector. Qualcomm, for instance, has made significant advancements with its Snapdragon Digital Chassis, which is based on ARM's intellectual property.

As smartphone shipments decline, ARM is strategically increasing royalty rates on its designs to ensure sustainable growth. Apple, one of ARM's most influential customers, has secured a deal extending beyond 2040. The IPO attracted investments from chip industry heavyweights like Intel, Nvidia, and TSMC. Tech giants Apple, Google, and Microsoft also participated, underscoring the critical importance of ARM's designs.

This IPO is not just the largest of the year but also ranks among the top five in history, surpassed only by companies like Uber and Xiaomi, which debuted on the Hong Kong Stock Exchange.

However, the timing is challenging for ARM. The industry is shifting towards AI workloads powered by GPUs in data centres. The company also faces a lawsuit with Qualcomm over licensing issues related to a startup called Nuvia. Additionally, ARM is grappling with challenges in its Chinese subsidiary and the emerging threat from the open-source RISC-V architecture.

In the long run, ARM's low-power, on-device processing capabilities could make AI workloads more ubiquitous and affordable. However, there are concerns that the pace of its technological advancements may not meet industry demands in the next two to three years, potentially stunting its medium-term growth.