Arm’s Nasdaq debut on Thursday looks good for SoftBank, which just spun the company out after acquiring it in 2016. But it’s a head-scratcher for Wall Street.
The UK-based chip design company saw its stock jump 25% to $63.59 after its IPO, lifting the company’s fully diluted market cap to almost $68 billion.
That’s a wildly high number for a semiconductor company that generated $400 million in profit in the past four quarters. It results in a price-to-earnings ratio over that stretch of close to 170, a number that towers over even Nvidia’s P/E ratio.
Nvidia, which develops graphics processing units (GPUs) that are being used to run artificial intelligence workloads, trades for 109 times trailing earnings — and that’s after the stock price more than tripled this year, far outpacing any other member of the S&P 500.
In the rest of the chip sector, nothing even comes close. The Invesco PHLX Semiconductor ETF, which is designed to measure the performance of the 30 biggest U.S. chip companies, has a P/E ratio of about 21.
For investors, the critical difference between Nvidia and Arm is the growth rate. Nvidia just reported a doubling of revenue in the latest quarter and forecast expansion of 170% this period, as all the major cloud companies ramp up spending on AI chips. Arm’s revenue, by contrast, shrank slightly in the last quarter.
“There’s no way you can justify a P/E ratio of over 100 for a no-growth company,” said Jay Ritter, a finance professor at the University of Florida and a longtime expert in initial public offerings. The story has to be that “the company will be developing some new designs that restart growth and generate profits,” he said.
For now, there’s not a big open market for Arm’s stock. Of the roughly 1.03 billion shares outstanding immediately after the offering, SoftBank owns 90%. The Japanese tech conglomerate took Arm private in 2016 in a deal valued at $32 billion, and SoftBank CEO Masayoshi Son is aiming to pull in some liquidity after a very rough stretch of investments for his company.
Of the $4.9 billion worth of shares SoftBank sold, $735 million were purchased by a group of strategic investors including Apple, Google, Nvidia, Samsung and Intel. That leaves a small sliver of shares to be passed between institutional and retail investors and traders, though volume was high enough on Thursday that Arm was the fifth most actively traded stock on the Nasdaq, with 126.58 million shares trading hands.
To buy in at these levels as a long-term investor, the bet has to be on growth. In its prospectus, Arm made the case that its technology “will be central to this transition” to AI-based computing. Arm’s designs are currently in almost every smartphone on the market, as well as in electric cars and data centers.
“We’ve got significant growth in the cloud data center and in automotive,” Arm CEO Rene Haas told CNBC’s David Faber on Thursday. “And then with AI, AI runs on Arm. It’s hard to find an AI device today that isn’t Arm-based.”
Arm said in its IPO filing that it expects the addressable market for products with its designs to reach $246.6 billion by 2025, up from $202.5 billion last year. That’s only 6.8% annual growth, so Arm’s path to greater prosperity has to be through market share gains and improved economics.
“We expect that the cost and complexity of chip design will continue to increase, and that we will be able to contribute a greater proportion of the technology included in each chip, resulting in our royalties comprising a greater proportion of each chip’s total value,” the prospectus says.
Matt Oguz, founding partner of Venture Science, said his investment firm indicated interest in the IPO but didn’t receive an allocation. He said the bullish case for Arm is that it’s been able to maintain strong profit margins even with a slight slippage in revenue, and that it’s a “unique company” given the ubiquity of its technology in so many key products.
For fiscal 2023, Arm’s gross margin — the percentage of profit left after accounting for the costs of good sold — was 96%, because the company makes much of its money from royalties and isn’t delivering hardware. Nvidia’s gross margin in the latest quarter was 70%, and that’s after shooting up from under 44% a year earlier. Intel and AMD recorded gross margins of 36% and 46%, respectively.
Arm’s operating margin was 25% in the latest quarter, as it was able to stay profitable even as much of the chip industry lost money due in part to a post-Covid inventory glut.
“This is not a commodity company,” Oguz said. “When you combine all those things together, it’s not that easy to calculate a multiple” on future earnings, he said.
— CNBC’s Kif Leswing contributed to this report.
Correction: Arm’s revenue shrank in the latest quarter. An earlier version misstated the company name.
Paxton sued Google in 2022 for allegedly unlawfully tracking and collecting the private data of users.
The attorney general said the settlement, which covers allegations in two separate lawsuits against the search engine and app giant, dwarfed all past settlements by other states with Google for similar data privacy violations.
Google’s settlement comes nearly 10 months after Paxton obtained a $1.4 billion settlement for Texas from Meta, the parent company of Facebook and Instagram, to resolve claims of unauthorized use of biometric data by users of those popular social media platforms.
“In Texas, Big Tech is not above the law,” Paxton said in a statement on Friday.
“For years, Google secretly tracked people’s movements, private searches, and even their voiceprints and facial geometry through their products and services. I fought back and won,” said Paxton.
“This $1.375 billion settlement is a major win for Texans’ privacy and tells companies that they will pay for abusing our trust.”
Google spokesman Jose Castaneda said the company did not admit any wrongdoing or liability in the settlement, which involves allegations related to the Chrome browser’s incognito setting, disclosures related to location history on the Google Maps app, and biometric claims related to Google Photo.
Castaneda said Google does not have to make any changes to products in connection with the settlement and that all of the policy changes that the company made in connection with the allegations were previously announced or implemented.
“This settles a raft of old claims, many of which have already been resolved elsewhere, concerning product policies we have long since changed,” Castaneda said.
“We are pleased to put them behind us, and we will continue to build robust privacy controls into our services.”
Virtual care company Omada Health filed for an IPO on Friday, the latest digital health company that’s signaled its intent to hit the public markets despite a turbulent economy.
Founded in 2012, Omada offers virtual care programs to support patients with chronic conditions like prediabetes, diabetes and hypertension. The company describes its approach as a “between-visit care model” that is complementary to the broader health-care ecosystem, according to its prospectus.
Revenue increased 57% in the first quarter to $55 million, up from $35.1 million during the same period last year, the filing said. The San Francisco-based company generated $169.8 million in revenue during 2024, up 38% from $122.8 million the previous year.
Omada’s net loss narrowed to $9.4 million during its first quarter from $19 million during the same period last year. It reported a net loss of $47.1 million in 2024, compared to a $67.5 million net loss during 2023.
The IPO market has been largely dormant across the tech sector for the past three years, and within digital health, it’s been almost completely dead. After President Donald Trump announced a sweeping tariff policy that plunged U.S. markets into turmoil last month, taking a company public is an even riskier endeavor. Online lender Klarna delayed its long-anticipated IPO, as did ticket marketplace StubHub.
But Omada Health isn’t the first digital health company to file for its public market debut this year. Virtual physical therapy startup Hinge Health filed its prospectus in March, and provided an update with its first-quarter earnings on Monday, a signal to investors that it’s looking to forge ahead.
Omada contracts with employers, and the company said it works with more than 2,000 customers and supports 679,000 members as of March 31. More than 156 million Americans suffer from at least one chronic condition, so there is a significant market opportunity, according to the company’s filing.
In 2022, Omada announced a $192 million funding round that pushed its valuation above $1 billion. U.S. Venture Partners, Andreessen Horowitz and Fidelity’s FMR LLC are the largest outside shareholders in the company, each owning between 9% and 10% of the stock.
“To our prospective shareholders, thank you for learning more about Omada. I invite you join our journey,” Omada co-founder and CEO Sean Duffy said in the filing. “In front of us is a unique chance to build a promising and successful business while truly changing lives.”
Liz Reid, vice president, search, Google speaks during an event in New Delhi on December 19, 2022.
Sajjad Hussain | AFP | Getty Images
Testimony in Google‘s antitrust search remedies trial that wrapped hearings Friday shows how the company is calculating possible changes proposed by the Department of Justice.
Google head of search Liz Reid testified in court Tuesday that the company would need to divert between 1,000 and 2,000 employees, roughly 20% of Google’s search organization, to carry out some of the proposed remedies, a source with knowledge of the proceedings confirmed.
The testimony comes during the final days of the remedies trial, which will determine what penalties should be taken against Google after a judge last year ruled the company has held an illegal monopoly in its core market of internet search.
The DOJ, which filed the original antitrust suit and proposed remedies, asked the judge to force Google to share its data used for generating search results, such as click data. It also asked for the company to remove the use of “compelled syndication,” which refers to the practice of making certain deals with companies to ensure its search engine remains the default choice in browsers and smartphones.
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The DOJ also proposed the company divest its Chrome browser but that was not included in Reid’s initial calculation, the source confirmed.
Reid on Tuesday said Google’s proprietary “Knowledge Graph” database, which it uses to surface search results, contains more than 500 billion facts, according to the source, and that Google has invested more than $20 billion in engineering costs and content acquisition over more than a decade.
“People ask Google questions they wouldn’t ask anyone else,” she said, according to the source.
Reid echoed Google’s argument that sharing its data would create privacy risks, the source confirmed.
Closing arguments for the search remedies trial will take place May 29th and 30th, followed by the judge’s decision expected in August.
The company faces a separate remedies trial for its advertising tech business, which is scheduled to begin Sept. 22.