Arm Holdings IPO Valuation Disconnected from Fundamentals, Warns Research Firm

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As Arm Holdings gears up for its highly anticipated initial public offering (IPO), equity research firm New Constructs cautions that the company’s valuation is not in line with its underlying fundamentals.

The IPO is projected to value Arm at a staggering $50 billion to $54.5 billion on a fully diluted basis. However, New Constructs argues that even a valuation of approximately $49 billion would miss the mark.

According to New Constructs CEO David Trainer, this valuation is more influenced by owner SoftBank Group Corp.’s manipulation of private markets rather than Arm’s actual performance. Trainer points out that SoftBank increased the valuation of WeWork Inc. prior to the company’s own IPO in 2021.

Examining the Discrepancy

Trainer suggests that Arm’s valuation has been artificially inflated due to SoftBank’s “self-dealing” practices, which favorably manipulate the company’s worth. This disconnect from Arm’s true fundamentals raises concerns about the accuracy and reliability of the IPO valuation.

Implications for the Tech Sector

The upcoming IPO of Arm Holdings is part of a week filled with significant technology developments, including Apple, Google, and AI advancements. The outcome of Arm’s mega IPO has the potential to shape the tech industry’s agenda for years to come.

As the IPO date draws near, investors and industry experts eagerly await further details regarding Arm Holdings’ true value and the impact it will have on the broader market.

Arm IPO: 5 Things to Know about the Chip Designer Central to the AI Transition

In a surprising move, SoftBank has decided to offer Arm Holdings to the public markets. However, critics argue that the valuation completely overlooks the company’s fundamentals. According to industry experts, for Arm to justify its $49 billion valuation, it would need to achieve over 20% annual revenue growth for the next ten years. While Arm is profitable and operates in a high-growth industry, this projection seems highly unlikely.

As a result, investors are being cautioned against participating in this IPO. Instead, they are being advised to explore other tech companies that offer growth opportunities at more reasonable valuations. It is essential to make informed investment decisions in this rapidly evolving market.

Furthermore, it is important to note that upon completion of the IPO, SoftBank is expected to control between 90% and 91% of Arm’s outstanding shares. This means that new investors will have no say in vital matters submitted for shareholder approval. Critics warn that this lack of influence can significantly impact the governance and decision-making processes within the company.

As the chip designer central to the AI transition, Arm’s IPO has generated significant interest in the market. However, it is crucial for potential investors to thoroughly assess the risks and rewards associated with this opportunity. Proceeding with caution and informed decision-making is paramount.

Potential Geopolitical Tensions Between the U.S. and China

There are concerns about the possibility of increasing tensions between the United States and China, which is a significant market for Arm. In fiscal 2023, China contributed nearly a quarter of Arm’s total revenue.

Analyzing Corporate Filings with Machine Learning

New Constructs specializes in utilizing machine learning and natural-language processing techniques to analyze corporate filings and estimate economic earnings. However, their research has faced some criticism.

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