Arm is gradually becoming one of the most hyped-up companies and it isn’t even public yet. This morning, it was announced that Taiwan Semiconductor (NYSE:TSM) had agreed to invest up to $100 million into Arm following the company’s initial public offering (IPO). The public debut is expected to be the largest tech IPO this year.
TSMC isn’t the only company interested in the British semiconductor designer. According to Bloomberg, Arm’s IPO orders are oversubscribed by 10x, indicating a strong demand for shares. The company’s bankers also plan on closing its order book today, while its shares could become “oversubscribed by up to 15 times by Wednesday,” according to sources familiar with the matter.
TSM Stock: TSMC to Invest Up to $100 Million Into Arm
Arm had previously filed for its IPO between $47 and $51 per share. The upper end of the range would value it at $54.5 billion. Still, the company is currently deciding whether to raise its IPO price due to the significant demand.
Following the IPO, investors should expect Arm to trade in a volatile fashion, as only about 9.4% of its shares will trade on the Nasdaq. That equates to about 95.5 million American depository receipts (ADRs). This is because a stock’s price is easier to move when it has a low free float. SoftBank (OTCMKTS:SFTBY) owns the remaining 90.6%, which it acquired for $32 billion in 2016. In addition, the underwriters of the IPO have an option to purchase up to 7 million more ADRs, which would reduce SoftBank’ stake to 89.9%.
Retail investors should be cautious when deciding to take a stake in Arm. According to Reuters, the 10 largest IPOs over the past four years are down by an average of 47% compared to their closing prices on the first day of trading. Institutional investors have also taken an interest in Arm’s IPO, which would mean a higher price for retail investors.
“Whatever comes out of the Arm IPO, you’ll see niches of the retail community trying to get in on it, but it’s not going to be at the levels we saw in some of the IPOs in 2021,” said Vanda Research Senior Vice President Marco Iachini.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
