This $85 billion company is about to start trading on the Nasdaq. Here's what you need to know

Arm is set to join the ranks of other AI high-flyers on the Nasdaq tonight.

Two businessmen shake hands against a tech backdrop, indicating a company IPO or a merger between two technology stocks.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stage is set for the largest initial public offering (IPO) in the United States this year. Tonight, British computer processor technology provider Arm is expected to commence trading on the Nasdaq exchange, priced at US$51 per share.

Based on the total number of shares, the IPO price would value Arm at US$54.5 billion (A$84.74 billion). A successful debut would make Arm the world's 295th most valuable public company, sharing the title with cosmetics giant Estee Lauder Companies Inc (NYSE: EL).

Despite it expectedly being worth more than prominent tech names, such as Dell Technologies Inc (NYSE: DELL) and Atlassian Corp (NASDAQ: TEAM), Arm is a relatively obscure name to many.

Let's dive into what role this chip colossus plays and the critical facts to know ahead of its listing.

What is Arm?

Artificial intelligence (AI) is the word on everyone's lips this year, and demand for the hardware powering it has soared.

The companies that come to mind providing AI chips include Nvidia Corp (NASDAQ: NVDA) and Advanced Micro Devices Inc (NASDAQ: AMD). Many are blissfully unaware that Arm supplies the foundations that scores of these chips are built upon.

Arm described what its core business is in its prospectus, stating:

We architect, develop, and license high-performance, low-cost, and energy-efficient CPU products and related technology, on which many of the world's leading semiconductor companies and OEMs rely to develop their products.

The central processing unit (CPU) is the brains behind the computing that is done in the cloud, on your desk, and in the palm of your hand.

Arm CPU architecture can be found in 99% of smartphones globally. The prevalence of the company's chip technology is unmatched — reaching an estimated 70% of the world's population with its products.

The likes of Nvidia and AMD aren't the only customers of Arm. Tech giants exploring their own silicon, including Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOG), and Inc (NASDAQ: AMZN), are licensing Arm's intellectual property (IP).

The company derives its revenue from charging a licensing fee and collecting a royalty on every computer chip produced containing its IP.

Why go public on the Nasdaq now?

A weak economic environment usually doesn't make sense to make a public debut. It is much harder to drum up the valuation and entice investors when everyone is tightening their belts. So, why would the head honchos of Arm be gunning for a listing?

We can only speculate, but there's a fair chance it has plenty to do with the excitement surrounding AI. The mere fact Nvidia shares are up 218% year-to-date, as shown below, should be enough evidence to prove an adequate appetite among international investors.

Moreover, reports are already suggesting Arm's IPO is ten times oversubscribed. In its pursuit of raising US$5 billion for its IPO, nearly US$50 billion of investor funds tried to secure a slice of the company.

In addition, Arm was going to be acquired by Nvidia in 2022 before being blocked by regulators. Perhaps an IPO on the Nasdaq was the next best option for private investors to cash out.

What to know before buying

Doing your due diligence before investing in any company is always worthwhile. A good place to start with Arm is its prospectus, which outlines its ambitions, risks, financials, and much more. At more than 230 pages long, it is extensive.

Here are a few points worth noting to give you a head start:

  • Approximately 25% of total revenue is derived from China
  • Around 57% of revenue is contained to only five customers (concentration risk)
  • Arm faces competition from free and open-source architectures, such as RISC-V

The above provides only a glimpse into the company slated to hit the Nasdaq tonight. The full swathe of financial statements can also be found in the prospectus.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Mitchell Lawler has positions in Advanced Micro Devices and Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Alphabet,, Apple, Atlassian, and Nvidia. The Motley Fool Australia has recommended Alphabet,, Apple, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on IPOs

IPO written in circles with a man holding a smartphone and a laptop open.
International Stock News

The highs and lows of the Instacart $11 billion IPO

Here is a closer look at the latest company to hit the Nasdaq exchange.

Read more »

A businessman hugs his computer and smiles.
Materials Shares

The ASX welcomed a new lithium stock today, and it's up 50%!

Investors have been getting excited about this new lithium stock today.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.

Redox share price drops after IPO

One of the biggest IPOs in some time has taken place on the ASX today.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

EverGreen Lithium share price rockets after IPO: everything you need to know

This lithium share is catching the eye after its successful IPO.

Read more »

A man sits uncomfortably at his laptop computer in an outdoor location at a table with trees in the background as he clutches the back of his neck with a wincing look on his face.

VHM share price plummets 11% following $30m IPO

The Aussie bourse welcomed a new rare earths stock today.

Read more »

IPO spelt out on a laptop with a red and green bar chart underneath.

Hydrogen, lithium, rare earths, oh my! Here are 3 shares floating on the ASX in 2023

The new year is set to bring new faces to the Aussie bourse.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

Patriot Lithium share price jumps 120% after IPO

This lithium share is having a fantastic debut on the ASX...

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
Resources Shares

Patriot Battery Metals share price rockets after IPO

There's a new lithium share in town. Here's what you need to know...

Read more »