(Additional reporting by Manya Saini in Bengaluru and Carolyn Valetkevich in New York), with additional reporting by Saqib Iqbal Ahmed in New York; Additional reporting by Niket Nishant and Amruta Khandekar – Prepared by Nike Arab Newsletter Editing by Arun Kuyur and Grant McCool
Arm executives and CEO Rene Haas meet outside the Nasdaq market site, as Softbank’s Arm, a chip design company, holds an initial public offering (IPO) in New York, US, on September 14, 2023. REUTERS/Brendan MacDiarmid/File Photo Get On licensing rights
Sep 15 (Reuters) – Shares of SoftBank’s Arm Holdings closed a volatile session lower on Friday, a day after a splashy debut on the Nasdaq that valued the British chip designer at $65 billion.
The stock fell 4.5% to close at $60.75, after trading at a high of $69 earlier in the session. Major US stock indexes fell on Friday as chipmakers fell amid fears of weak consumer demand. The Nasdaq (.IXIC) fell 1.6%, the S&P 500 (.SPX) fell 1.2%, while the Semiconductor Index (.SOX) fell 3%.
On Thursday, Arm’s shares closed nearly 25% higher at $63.59, raising hopes for an end to the U.S. listing drought. The IPO price was $51.
Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas, attributed the stock’s turnaround Friday to a combination of how much stocks jumped in the previous session and volatility on a generally weak day for stocks.
“It’s not uncommon for any stock that rises quickly to see at least a little bit of profit taking right afterward, whether it’s an IPO or not,” he said.
Some strategists said the stock’s trading volatility may be related to the limited number of publicly traded shares, as SoftBank continues to own about 90% of the shares.
“There are clearly investors interested in this company,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey. “But limited editions of this type can be very volatile.” “Ultimately, it was pulled lower at the end of the day due to weakness in the Nasdaq.”
More trading volatility in Arm could emerge if the company attracts more interest from retail investors focused on artificial intelligence, analysts said.
Options contracts for Arm Holdings will debut on Nasdaq exchanges on Monday, giving investors a new way to bet on the fortunes of the year’s largest initial public offering.
Arm Holdings is also preparing to be added to indexes such as the tech-heavy Nasdaq 100, although inclusion in the S&P 500 is unlikely, analysts said.
Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: “The high enthusiasm around trading suggests there is still significant appetite for high-growth names, and there is growing hope that the IPO market will now be more buoyant next year.”
Arm told potential investors in New York when it began marketing its IPO that the cloud computing market could be an area of growth for it. Financial data disclosed before the IPO showed that Arm’s full-year sales had declined marginally.
It currently holds only a 10% share in this sector which was expected to grow at an annual rate of 17% until 2025, mainly due to advances in artificial intelligence.
“Arm generates very high marginal revenue, but a lot of that is put back into R&D,” said Michael Ashley Shulman, partner and CIO at Running Point Capital Advisors.
Analysts said Arm could catch up with Nvidia (NVDA.O), which has been the biggest beneficiary of the AI boom, as its chips will need power-efficient central processing units (CPUs) – an Arm specialty.
Brokerage firm Needham initiated coverage on the stock with a “hold” rating and said it was waiting for a better entry point.
“Arm can grow by capturing more value from smartphones, but not enough to support the upside from the stock’s IPO valuation,” she said.
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(tags for translation)MTPIX