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SoftBank’s $50 billion Arm offering was more than five times oversubscribed, according to bankers pitching investors the biggest initial public offering in nearly two years, as the British chip designer expects an artificial intelligence boom to drive revenue growth.

While investors worried about Arm’s profit decline in the latest quarter amid a slowdown in the smartphone industry and the company’s exposure to multiple risks in China, the adviser overseeing the Nasdaq listing said “investors are less sensitive to price,” Many of them were forced to buy due to Arm’s inclusion in the index.

Brokers for the 28 banks that sold the Arm IPO gathered more than 100 of the world’s largest fund managers in a New York hotel this week to convince them that this was their chance to be a big winner in artificial intelligence.

“AI is going to be everywhere, and it’s all going to run on Arm,” Rene Haas, chief executive of SoftBank’s chip designer, told potential investors in a pitch video seen by the Financial Times. express.

Arm executives expect revenue growth to accelerate after a lackluster 2023 as the company ramps up royalty payments to smartphone makers, people who attended the roadshow said. Arm said its revenue could grow by at least 20% in the fiscal year ending March 2025, beating analysts’ expectations, these people said.

“You want the numbers to be presented in the most optimistic light possible, and they are,” said one fund manager.

Bar chart of stabilizing revenue and falling profits as smartphone market slumps shows Arm's growth slowing ahead of IPO

Earlier this week, Arm set an initial pricing range of $47 to $51 per share, raising as much as $4.9 billion for parent SoftBank and valuing the Cambridge-based company at as much as $52 billion.

SoftBank founder Masayoshi Son bought Arm for $32 billion in 2016. Arm’s valuation when it starts trading in New York next week may not be as important as the listing itself, according to people familiar with its thinking.

In tech IPOs, it’s not uncommon to limit the initial listing to the sale of a small number of shares. But analysts say SoftBank’s plan to take a majority stake in Arm and use it to borrow money could limit supply in the long run, increasing its value.

Arm’s core market for smartphone chips has stagnated this year, but it hopes to gain growth from artificial intelligence and data center customers, despite only playing a role in the technology needed to build the large language models that power ChatGPT and other generative AI systems. peripheral effect.

In a video distributed to potential investors during a roadshow that began Tuesday, Haas pointed to the expected boost from the artificial intelligence wave that has pushed chipmaker Nvidia to a $1.2 trillion valuation this year.

“Our opportunities are limitless because everything is a computer today, and with the advent of artificial intelligence, the world’s computing needs are insatiable,” the Arm CEO said summarizing his presentation.

Nvidia founder and CEO Jensen Huang also starred in the video. He declared that Nvidia’s new Grace Hopper AI “superchip” would not have been possible without the essence of the Arm architecture, the incredible performance of Arm CPUs, and the IP business model.

Nvidia CEO Jensen Huang holds one of the chips

Nvidia CEO Jensen Huang appears in Arm roadshow video © AFP via Getty Images

However, some fund managers who have embraced Arm’s charm offensive say the sheer number of bankers involved in the IPO is itself a red flag.

“The fact that everyone is pitching us on Arm feels like it’s happening at the end of a cycle when it’s hard to sell a story,” said an asset manager at a global tech fund. “If this is considered the AI ​​cycle’s To begin with, that’s not good.”

Weeks ago, bankers privately floated the idea that SoftBank would sell a 10% stake in Arm, valuing the entire company at as much as $70 billion. Some analysts counter that it’s hard to argue that Arm is worth more than $40 billion.

Last month, SoftBank unexpectedly bought a 25% stake in Arm from its own Vision Fund in a deal that valued Arm at $64 billion.

David Gibson of MST Financial said the many bankers involved in the IPO “did a good job initially coming up with a high valuation of $60 billion to $70 billion, and then bringing it down to around $50 billion now, This creates a perception that IPOs have value and that investors should participate.”

One person involved in the preparations for the IPO said Son was keen to move forward with the listing, but he was equally keen to make sure his investment in Arm didn’t dwindle.

Masayoshi Son believes that SoftBank will not only retain more than 90% of the company’s shares, which will support the future of the computing industry, but also be able to rely on this newly listed company as a main source of financing.

In a recent “defensive” mode, SoftBank sold its stake in Chinese e-commerce giant Alibaba. Masayoshi Son is an underlying investor in the company, whose expansion from small fish to giant whale has boosted his reputation as a tech visionary.

In the eyes of many SoftBank shareholders, the company’s ability to tap Alibaba stock and its ability to borrow against Alibaba stock is like a readily available ATM.

“SoftBank has wanted to monetize Arm for years,” said Astris Advisory analyst Kirk Boodry. “Arm is a quality asset with strong revenue and good margins. — in that respect, it’s a perfect alternative to Alibaba.”

Additional reporting by Kana Inagaki in Tokyo, Nicholas Mego, Eric Pratt and Madison Darbyshire in New York, Harriet Agnew in London and Richard Waters in San Francisco

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