© Reuters. FILE PHOTO: A smartphone with a displayed Arm Ltd logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Manya Saini, Niket Nishant and Echo Wang

(Reuters) -SoftBank’s Arm Holdings was likely to be valued at $62 billion in a potentially strong Nasdaq debut on Thursday, as the shares of the chip designer were indicated to blow past their offer price.

Its stock was set to open at $58 per American Depositary Share compared with the initial public offering (IPO) price of $51, in a sign of confidence for other companies planning to list.

Arm had secured a valuation of $54.5 billion on Wednesday after pricing its IPO at the top end of the marketed range. It fetched $4.87 billion for SoftBank (TYO:), which still holds a 90.6% stake.

“It became pretty clear that continuing to be an independent company was the best path forward,” CFO Jason Child said in an interview, noting that Arm has a significant market share of the CPU (Central Processing Unit) industry.

The company was taken private seven years ago for $32 billion by SoftBank, which has been looking to cash out some of its stake since at least 2020, when it signed a $40 billion deal with chipmaker Nvidia (NASDAQ:) for Arm.

That plan, however, was abandoned by the Japanese investment giant less than two years later due to regulatory roadblocks.

Since then it has pivoted towards an IPO, though that also came with its own hurdles, including run-ins with the British government that was campaigning for a London listing for the chip designer.

“The Arm IPO is the most hyped listing we’ve had in the markets for a while,” said Kyle Rodda, senior market analyst at brokerage firm Capital.com.

“It will also be a major test of risk appetite and whether these high-growth, speculative companies still attract interest in a new world of higher interest rates.”

Arm’s return as a public company represents a climb-down from the $64 billion it was valued at last month when SoftBank bought the 25% stake it did not directly own from its Vision Fund unit.

CFO Child said that had not dampened SoftBank CEO Masayoshi Son’s enthusiasm for Arm. “He is quite bullish on the company,” Child said.

“The price today or even in the near term isn’t really his focus, the focus is where’s the price goanna be in the in the future.”

Arm disclosed last month its annual revenue had dropped 1% but was hoping to increase it at a time when its two largest markets – smartphones and personal computers – are in a slump.

Child said Arm can still increase its sales as it was reaping a 5% royalty rate on chips made with the newest technology versus 3% with the previous version. Premium phones are more likely to use Arm’s most advanced technology.

Arm’s successful listing is crucial for a revival in the IPO market that also awaits the high-profile listings of marquee startups including grocery delivery firm Instacart and marketing firm Klaviyo.

Investors have over the last year begun to pay more attention to profitability, shunning cash-burning startups that had in 2021 fetched lofty valuations on the back of a record year for deals.

The 10 biggest U.S. IPOs of the past four years are down an average of 47% from the closing price on their first day of trading, according to the analysis of LSEG data as of Friday.

Investors who bought at the top of an intra-day price surge that often occurs in high-profile listings would have fared even worse, with an average loss of 53%.

CHINA EXPOSURE

Arm has positioned itself as indispensable in the tech hardware ecosystem as its chip designs power nearly every smartphone in the world, from Apple (NASDAQ:)’s iPhones to Samsung (KS:)’s Android-based devices.

However, almost a quarter of Arm’s revenue comes from an entity it does not control but nonetheless relies on access to China’s massive smartphone market.

“Despite some concerns about its exposure to numerous risks in China, it’s not stopped a juggernaut of enthusiasm, with the IPO oversubscribed multiple times,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

NASDAQ SCORES

Arm’s debut also gives the Nasdaq, which won the listing, a potential boost to future revenue growth.

Large deals like Arm provide the Nasdaq with short-term publicity and is a long-term bet to boost recurring revenue the exchange collects from annual listing fees, analysts said.

“Anytime it (Nasdaq) gets a new listed company, it’s able to drive revenue not just through the listing, but also through the other services that it sells to these listed companies on their exchange,” said Andrew Bond, managing director and senior fintech analyst, at Rosenblatt Securities.