Arm’s Target Valuation Shows It Isn’t Nvidia. It Will Still Be a Big 2023 IPO.

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Arm Holdings is poised for a blockbuster initial public offering that will test market demand for an important technology company. However, the targeted evaluation suggests that it will not be the next one

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British chip designer Arm reported on Tuesday that its initial public offering would value the company at an estimated $52 billion.

The target is below its $64 billion valuation following a share sale involving current owner SoftBank (Ticket: 9984. Japan). SoftBank is hoping to sell 10 percent of the total shares in the offering, The Journal reported.

However, it still makes it the biggest IPO of the year and an important milestone Investor interest High interest rates in the list of high-tech companies. The review still suggests that ARM has very good prospects.

The company will issue 95.5 million American Depositary Shares at $47 to $51 each, with each ADS representing one ordinary share. With 1.03 billion common shares outstanding after the IPO, the company will be valued at between $48.23 billion and $52.33 billion.

ARM reported revenue of $2.68 billion and net income of $524 million in its last fiscal year. This suggests that it is looking for a price-to-earnings multiple of 92 to 100 times.

This is lower than Nvidia’s ( NVDA ) trading price-to-earnings ratio of 117 times. However, Arm is still seeking a large premium to other chipmakers that share significant exposure to a sluggish smartphone market. For example, Qualcomm (QCOM) trades at a P/E ratio of 15 times.

A retrospective review does not tell the whole story. Arm Technology manufactures the chips in every smartphone and hopes many of its partners will invest in the IPO as strategic investors. Nivea,

Apple

(AAPL) and Google-parent

Alphabet

(GOOGL) are all among the companies that have signed up to invest. This can increase the price.

However, what makes sense as a strategic investment for ARM clients may not make sense for individual investors. Arm’s exposure to smartphones and the Chinese market has raised questions among analysts about its growth trajectory.

“Our analysts are skeptical about the long-term sustainability of revenue growth and ARM’s high margins. They expect 5-10% annual revenue growth for the next five years, followed by higher and continued contraction each year,” Albie Amankona, an analyst at Third Bridge, wrote in a research note on Monday. .

Write to Adam Clark at [email protected]