This analysis was first published in SvD Näringsliv, in Swedish, on September 13th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
When chip company Arm goes public, the world waits eagerly to see whether the appetite for tech listings has returned. But reading too much into Arm is risky — it is not an ordinary tech company.
A jubilant and excited Masayoshi Son, CEO of Japanese investment firm SoftBank, met the press in London in 2016.
“This is a company I have admired for the last ten years. This is the company I want to make part of SoftBank.”
The company in question is Arm Holdings, a British chip firm. The Japanese conglomerate SoftBank bought it out from the stock market in 2016 for around $32 billion.
The path since then has not been straightforward, at least when it comes to ownership. On Thursday, Arm will in all likelihood make its comeback on the stock market — and in doing so, open the window for other tech listings, a window that has been firmly shut for some time.
Arm is not just any tech company. Its market share for processors used in mobile phones is over 99 percent. There is not an iPhone or Android phone in existence that does not contain an Arm component. That kind of position is very different from the many software companies that are collectively considered “tech.”
Being so exposed to a single market comes with complications. Arm does make products beyond mobile processors, but the mobile phone market has faced headwinds in recent years. Growth has stalled, and for companies like Apple and Samsung the challenge is more about maintaining existing sales levels and supplementing with services and adjacent offerings. For Arm, this creates a kind of stability — but not the explosive growth that markets typically expect from tech companies.
On the other hand, the area of AI — with Nvidia leading the charge — has generated enormous interest in chip companies. It is partly this situation that owner SoftBank is looking to capitalise on. The company’s valuation at IPO could now exceed $50 billion.
There are additional reasons for the listing. SoftBank made its name with bold tech investments at enormous valuations. For several years, when capital was cheap and freely available, one of its strategies was to pour in as much money as possible into its portfolio companies — enough to simply outrun the competition. This worked well for a number of years.
When the air went out of the tech market, however, SoftBank found itself stuck with a portfolio of holdings whose valuations had fallen, and with weaknesses in the underlying businesses. SoftBank ran into trouble. In its most recent quarterly report in August, the parent company recorded a loss of $3.3 billion — more than 36 billion kronor.
In the current AI boom, Arm presents itself as a saviour for the Japanese parent company. If Arm goes public, SoftBank can more easily leverage its remaining roughly 90 percent stake, and in that way build a new war chest to invest from.
This is not the first time SoftBank has tried to do a deal with Arm. Back in 2020, Arm was set to be sold to chip giant and partner Nvidia for a price tag of $40 billion. Nvidia was already enormous at the time, but the world’s interest in AI had not yet exploded. That deal fell through in February 2022, when both parties realised that the regulatory hurdles were too great. The combined company would have become so large and powerful that it would have distorted competition. The two companies continue to work closely together as partners, but without any ownership connection.
When the Nvidia deal collapsed, SoftBank had to rethink. And somewhere in that process the new plan was born: to bring Arm back to the stock market — where it had been before SoftBank bought it out in 2016.
The world is now watching closely to see how the market receives the listing. Shortly after Arm, delivery company Instacart and software company Klaviyo will likely also go public. All three will be scrutinised carefully by both the market and by tech entrepreneurs who did not manage to list their companies before tech stocks started falling. Many had planned to go public during 2022 but were quickly forced to find a new plan. If these three companies are well received by the market, it could trigger preparations for new listings at many mature tech companies. If they do poorly, that window will be pushed several more months into the future.
But reading too much into Arm is risky. It is a company with a near-monopoly on the mobile market, and with such a strong AI tailwind that the timing could hardly have been better. Partner Nvidia’s stock has risen more than 213 percent — this year alone. Not many “ordinary” tech companies can match that.
