Week of August 21, 2023
Dec Mullarkey, CFA , Managing Director, Investment Strategy and Asset Allocation
U.S. initial public offerings (IPOs) have been in a freeze for almost two years. But the news that Arm Holdings, a British chip designer, is expected to list on the NASDAQ stock exchange over the next month has markets buzzing. After record IPO issuance in 2021, the onset of rate hikes from the U.S. Federal Reserve forced investors to turn cautious. Now as the path of interest rates becomes clearer, the success of the Arm listing could be a very telling barometer of investor sentiment, in our view.
Arm is coming to market as investors embrace the potential growth of AI and the hardware behind it. The stock of Nvidia, the AI industry leader which designs and manufactures chips, is up over 200% this year.?
By association, we think Arm would like to catch some of that glow. But it only designs chips and collects fees. While its designs are easy to use, it also has stiff competition, including some university-sponsored open-source free solutions. Granted, Arm’s designs dominate smartphones and other devices, but industry consensus suggests the company is not yet on the leading edge of AI. Therefore, it will be interesting to see how investors embrace the Arm IPO.?????
Source: Financial Times, 2023.
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