Updated with market reaction and executive interview:

Newly public shares of British chip design firm Arm Holdings Ltd., which dominates the smartphone industry, jumped 10% in initial trading and then rocketed to close up nearly 25% Thursday.

Arm had set a price of $51 per share Wednesday in the biggest initial public offering of the year, raising $4.87 billion for the company.

Arm’s shares, under the ticker symbol ARM, rose to $56.10 a share on the opening, giving the company a market valuation of nearly $60 billion, before closing up 24.7%, to $63.59 a share, for a valuation of $65.2 billion. According to Bloomberg, with restricted share units, Arm’s fully diluted valuation is near $68 billion.

It was initially eyeing a higher price of $52 per share, before settling on the lower amount. The shares being sold represent about 10% of the company. The initial price had valued Arm at $54.5 billion on a fully diluted basis, some way below the $64 billion valuation determined by its current owner SoftBank Group Corp. when it acquired a stake held by its Vision Fund last month. But now it has exceeded that valuation.

Arm Chief Executive Rene Haas is positioning the company as a key driver of the fast-emerging era of artificial intelligence, pushed into high gear by generative AI chatbots such as OpenAI LP’s ChatGPT. “AI on Arm is literally everywhere,” Haas said in a post this morning. “Seventy percent of the world’s population relies on Arm technology today, putting us in a unique position to advance AI across all devices.”

In an interview with SiliconANGLE, Dipti Vachani, senior vice president and general manager of Arm’s automotive line of business, said the IPO will enable Arm to take an even greater role in burgeoning AI workloads, especially as the execution of AI models moves increasingly to edge devices rather than in data centers and the cloud.

“We were AI before AI was cool,” Vachani said. “Arm and AI is synonymous. AI workloads have run on Arm from the start.”

Vachani noted that despite Nvidia’s Corp.’s leadership in AI thanks to its powerful graphics processing units, AI also requires central processing units like Arm’s designs, such as preprocessing data. “Accelerating AI within the CPU is necessary because of the low-power requirements that CPUs can provide,” she said.

Arm is not a chipmaker itself. Rather, it is focused on essential circuit designs. The company was founded in 1990 and from the beginning it has focused on the mobile phone, and later the smartphone industry. It has long since become the dominant supplier of chip circuit designs to smartphone makers, and has since extended its scope to include chips for tablets, sensors and data center servers.

In its IPO paperwork, Arm said its chip designs helped to make $98.9 billion worth of semiconductors last year, accounting for 48.9% of the global market.

Arm’s shares are expected to attract a lot of interest from investors who believe that the company will not only be able to grow sales among its existing customer base, but also expand into new markets. It’s said that Arm’s blueprints form the basis of more than 99% of the world’s smartphone chips. However, it has room to expand in areas such as the automotive industry, cloud computing and computer networks.

In its fiscal year ended March 31, Arm reported flat revenue at a time when the smartphone market was in decline, with sales hampered by a troubled economy. However, in its filing, Arm points to high growth in several of the nascent markets it operates in.

For instance, it says the data center server processor, data processing unit and SmartNIC chip markets are expected to grow from $17.9 billion to $28.4 billion by 2025. Meanwhile, the automotive chip industry is set to expand from $18.8 billion to $29.1 billion over the same period.

Arm is also looking to capitalize on the growth of an artificial intelligence industry that has exploded into life since the arrival of OpenAI LP’s ChatGPT. Generative AI models need to be trained and run on massive amounts of computing power, and the rising interest in them provides a unique opportunity for every chipmaker. To date, Nvidia Corp. has been the biggest beneficiary of the generative AI boom, with the value of its stock surging by more than three-times since the start of the year, past $1 trillion.

Although it sees potential in AI, Arm also cites the market as a potential risk factor. In its filing, it said some AI and machine learning technologies use algorithms that may not be suitable for the general-purpose central processing units it designs. “Consequently, our processors may become less important in a chip based on our products, thus eroding its value to the customer and resulting in lower revenue for us,” the company stated.

Analysts say that Arm could use the expected cash influx from its IPO to accelerate its research and development efforts in a bid to lower the costs of chipmaking. At present, it costs around $249 million to design a new semiconductor using a seven-nanometer process, according to Arm. That price will rise to $725 million when it comes to designing chips based on a two-nanometer process, which are expected to arrive later this decade.

Vachani also said the IPO will provide even more visibility for the company and its ecosystem of partners. And not least, it provides liquidity for current employees and will serve to attract more talent through stock options.

Arm’s IPO is set to be closely watched for signals of the market’s interest in new stocks. The IPO market has flatlined over the past year as high interest rates and inflation have deterred investors. According to the Journal, 2022 was the slowest year for IPOs in more than two decades.

“Arm’s IPO is a crucial one that’s being watched by many other IPO hopefuls,” said Holger Mueller of Constellation Research Inc. “It’s an important one for the wider chipmaking industry too as it will capitalize Arm and allow it to become more competitive in a dynamic and disruptive era, where AI is fast-emerging as the main mover and shaker of so many markets.”

Should Arm’s IPO do as well as the company hopes, Mueller said, it would bode well for other technology firms, such as the grocery delivery firm Instacart Inc. and the marketing automation platform Klaviyo Inc., which are both expected to make their public debuts later this month.

During the most recent episode of theCUBE Podcast, SiliconANGLE’s founding editor John Furrier and Wikibon analyst Dave Vellante discussed the implications of Arm’s IPO and its prospects for AI:

With reporting from Robert Hof

Image: Arm