Arm jumps 18% in market debut to notch $60B valuation | Hacker News Reader

Arm jumps 18% in market debut to notch $60B valuation

reuters.com

111 pointsmfiguiere58 comments

From an FT article:

> SoftBank discussed with underwriters on Wednesday whether to price Arm shares above the initial range, at $52, but settled on the lower figure in the belief shares would trade up and boost confidence in overall markets after nearly two years of pressure on valuations.

> “So many people, including SoftBank and all the underwriters, have so much riding on the overall health of the IPO market,” said one person close to the Arm listing.

Makes sense given that SoftBank and its underwriters would like to have many more IPOs, and the fear that a poor showing here could draw out the current "IPO winter" seems reasonable.

They probably got 3-4x what they would’ve been able to get with UK IPO.

That's super interesting! 4D chess move to be sure, but also kind of crazy that companies plan strategies around affecting the entire world market based off of their behavior.

Matt Levine has a great piece on ESG actually being a market reaction to the fact most people own index funds now. Since most people are concerned about the OVERALL market now, ESG serves to optimize an externalized concern for the entire market at specific firms.

What is ESG?

"Environmental, Social, and Governance"

Monopolist corporate feelgood bs, basically. A moral licence to exploit, analogous to licence to pollute.[2] [3]

1. https://en.wikipedia.org/wiki/Environmental,_social,_and_cor...

2. https://www.theguardian.com/environment/2023/jan/24/carbon-o...

3. https://en.wikipedia.org/wiki/Recycling

You make it sound like something bad, but surely these are positive things for companies to take into account?

Not financial advice. Do your own research but I think this should cover why people are wary of ESG.

I think the idea sounds ok. who wouldnt want to invest in these firms? They care about the environment and society and making the world better, right? Well, the implementation is 100% BS.

Tesla was removed from the SP500 ESG index.

They get a lower score than oil and tobacco companies. Nike and many other firms are using slave labor and get higher scores. Ford and Stellantis have higher scores. The government allows for plans to select these funds for reasons that violate fiduciary duty. The majority of funds underperform the market. They use your money to reward politically aligned companies. ESG is being used to affect credit scores of these firms. Lower scores, higher cost.

If higher carbon emissions, slave labor, and political contributions is what ESG is actually about, these are tainted assets.

- https://hbr.org/2022/03/an-inconvenient-truth-about-esg-inve...

- https://reason.org/commentary/esg-investing-is-bad-for-the-e...

- https://time.com/6180638/tesla-esg-index-musk/

- https://thehill.com/opinion/4059114-a-lawsuit-waiting-to-hap...

- https://www.lw.com/admin/upload/SiteAttachments/Alert%203058...

- https://x.com/elonmusk/status/1526958110023245829?s=20

- https://www.environmental-finance.com/content/analysis/surpr...

- https://hbr.org/2022/08/esg-investing-isnt-designed-to-save-...

- https://www.leadershipnowproject.org/esg-political-influence

Informative. Sounds like the official goals are good and noble, but the way it's used in practice is corrupt and counterproductive.

So who hands out these scores? And are there independent parties evaluating them or giving their own, more neutral scores?

POSIWID: "The purpose of a system is what it does"--Stafford Beer.

The purpose of climate change policies is to give subsidies to voters, who are relatively more wealthy than people unlikely to vote. The purpose of ESG is to provide political cover for rapacious exploitation of workers and environments.

I saw a twitter commentator point out that this is higher than the $40B Nvidia wanted to buy it for. Argument was that stricter antitrust could actually lead to greater shareholder value.

the IPO is only for a fraction of the company's shares

whereas the $40B would have been for 100% of them

The valuation includes the shares Softbank kept (~90%)

Current share price is only the price the last trade was made at. It would be remarkable if the other 90% could sell for anywhere near that number. Comparing an offer for the entire company to selling 10% to the public is a bit lopsided.

That is why they only sold 10%. They think they can keep market depth thin, raise the price, and sell more over time at higher prices when they need cash. This is exactly what Intel is doing with Mobileye. It’s a piggy bank that they will break open from time to time.

which is why it's meaningless to try to equate market cap with an unconditional instantaneous purchase of all outstanding shares

Generally if you want to buy the whole thing / take it private, you have to pay out all shareholders in cash the public market price plus a premium - you definitely don't get a discount.

Just look at what happened to Elon.

you don't know what the public market price is for the majority of the shares as only 10% were sold today

I don't know what that means - but when an individual or a company looks to buy out another company wholesale, they do in fact use the public market price, multiply it out by the full share cap, and then add a premium on top. That's literally how a buyout works.

> I don't know what that means

maybe we should stop here then

Your sentence didn't make sense - just look up how buyouts work and how they're priced.

That's literally not how buyouts work. The public stock price is certainly one factor of many that go into calculating the acquisition price, but it is not an absolute floor. One counter-example that comes to mind is Yahoo!, which was purchased by Verizon for less than its market cap at the time.

It’s not an absolute floor no, but it’s a strong factor in price determination. It feeds back the other way too, if a competitor is acquired for far less than public price it smacks the public price of competitors.

Assuming there is a buyer waiting to take ARM private seems pretty unlikely.

If you happen to hold the majority of shares and then try to sell them suddenly you’ll sell them at a discount. Just look at TSLA when Elon had to liquidate significantly to pay for TWTR.

> Assuming there is a buyer waiting to take ARM private seems pretty unlikely.

The whole premise of this comment thread is that ARM made more by selling 10% of its stock on a public market than they would have by selling 100% of it to Nvidia. In other words: there already was a buyer who wanted to take ARM private. So how does it seem unreasonable to assume one would exist, when we already know that one did?

Ok. Let’s play that out. Nvidia walks away from a negotiation at 40 and now they are waiting around to do a leveraged buyout at 70? Why?

They didn't walk away from it. They were blocked from making the acquisition.

market cap is same as 100% of shares so it is $25B more than Nvidia price

only if you assume there is the same level of instantaneous demand for a supply of 10x as many shares

definitely not the case

That is what you assume when you look to take a company private.

Think about it this way: The current market price represents the amount the shareholders who least value their shares would be willing to sell them for. As you want to acquire more, the price is going to go up, not down.

That's pretty irrelevant if it only represents 10% of the total equity, though. It's not like you, as a retail investor who owns a few shares of a company, have any say in whether it gets acquired.

SoftBank values continuing to hold the other 90% of the shares more than the market price or they’d be selling more.

Also keep in mind that Softbank was going to keep part of the company (IoT) in the Nvidia deal.

Nvidia is worth over 3 times as much as it was at the start of the attempted acquisition.

Am I crazy in thinking that $60(ish) billion feels like very little when considering the value brought about by the paradigm shifts and hugely successful products (iPhone/Apple M chips/most of the SoC's on just about every phone) made possible by its chip architectures? Makes Twitter/X seem hugely overvalued, to provide one comparison which makes me scratch my head a bit. I guess I truly know nothing about anything.

I tend to agree, but also realize most phones run on razor thin if not negative margins. Stocks are all about looking long term, and as an investor I'd have concerns about the rise of RISCV or other 'free' ISAs on that horizon.

Only Apple (85% of global profit share) and Samsung (12%) have positive margins on smartphones. [1]

[1] https://macdailynews.com/2023/08/04/apple-iphone-dominates-w...

They let their customers make most of the money, which is how they grew the ecosystem with all the network effects. Just as an example, Qualcomm is a 10% customer of ARM, and they made $38b in chip revenue in fiscal 2022. ARM had $2.7b. Now they want more, and are going to push people to RISC-V if they’re not careful

You should price it against the replacement value - what would it cost to replace ARM? (Or Twitter/X for that matter - in the later case you need to include the marketing needed to match their current userbase.)

The paradigm shift is utterly irrelevant to their market value.

The chip architecture produces a lot of value, yes, but Arm itself does not capture most of that value.

It feels like something of a missed opportunity for them (Arm), I guess. I wonder what the stock value for Arm would be, if back in the day, they had come up with a business model similar to that which Unreal engine employs today.

E.g. we'll license you the architecture for free but customization and support will cost. What we really want though, is royalties generated by any and all ecosystems created or made possible by our design, at the rate of X percent of annual sales revenue generated by said ecosystem if and when the revenue reaches more than 0.65 bajillion dollars.

ARM could simply not have established itself as dominate if they would try to capture all that value, when there were competitors who wouldn't demand even more.

If ARM makes the 'mobile phone' ecosystem possible, ARM should get money from each call? How would you even capture that. Not even the company who produces the phones gets that money.

ARM already gets royalties on each chip sold.

Arm didn't make the iPhone or the Apple M.

The Apple M successful because Apple paid a lot of money to higher great chip designers and has a great relationship with the best Fab. They could likely have achieved very similar results with MIPS. Apple pays ARM a license fee but otherwise don't have much to with chips like the Apple M.

But a lot of where they make money is very attachable from the low end by RISC-V. And from there RISC-V will just move up and up. I see their future as trending down not up.

But why did Apple choose to do that if they could have saved money, never paid Arm Inc a cent, and gone with RISC-V? Arm brings a lot of things to the table, and while Apple is alone in having done a CPU architecture change successfully not once, but twice, it's not something they do just for funsies, so I doubt a switch to RISC-V is imminent.

RISC-V didn't exist

ARM and Apple also go way back, it was founded a joint venture between Acorn and Apple (and VLSI)

The Mac has swapped out CPU architectures 3 times.

- Motorola

- IBM (Power architecture)

- Intel

- Apple ARM

And operating system foundations once.

Pretty near flawlessly every time.

Damn, I knew I was forgetting one! Thanks.

It was PowerPC, not Power, those are different.

A switch to RISC-V isn’t imminent but I wouldn’t be surprised if they did switch in the early/mid 2030s. Apple tends to switch their CPU architecture every 15 years or so.

RISC-V doesn’t yet exceed ARM capabilities across the board but it likely will before this decade is over.

As people have pointed out. RISC-V didn't exist when they created the IPhone and wasn't even ready when they did the M chips.

>so I doubt a switch to RISC-V is imminent

I never claimed it was. My point was that Apple is not giving much money to ARM. So it really doesn't matter all that much.

My point was not that Apple would adopt RISC-V but rather that RISC-V would eat ARM market from below, and partly from the DC too.

The reason the original IPhone was ARM is because ARM was strong in the mobile market as they had many license in the mobile market already during the 90s and their chips were often together with mobile chips on an SoC.

But ARM already controls the mobile market almost totally, so there isn't much upside there, but lots of downside.

To add, PA semi was a Power ISA shop. After apple aquired them they simply ported it — modern computers are branch prediction machines and the ISA doesn't matter as long is it has the basic load/store add ect.

OEMs rarely make money: they get the design in but don't get significant payments until volume gets up (if ever). And once the original version is designed, the buyer wants to increase margin and/or lower costs, which they do by pressuring their suppliers.

Furthermore, ARM isn't even an OEM; it sells licenses (patent licenses plus rights to use copyrighted designs) so Oppo is paying someone to design a chip using ARM IP and paying someone else to fab it, and then a little goes to ARM.

All in all, a shitty business unless you get lucky, which ARM did. They took advantage of their luck, don't get me wrong, but luck was what gave them the opportunity that so many others either didn't get or didn't know how to take advantage of. Microsoft was another lucky winner who knew what to do; Intel went the other way and made their own luck until they got distracted.

Unlike, say, NVidia, Intel and Apple, ARM is not in control of its fate, or rather has limited control. And despite those first three having control, that doesn't guarantee anything: one of them lost the thread, one of them had a near death experience, and one of them has so far managed to stay on top.

The value a company brings to society and the value that it captures are two different things. Arm operates in an industry where it is hard to capture value, the semiconductor industry, and its moat is strong but only upheld by them not charging a lot. The semiconductor industry is mature at this point, still having a lot of development, but also a lot of competition.

If they charge too much, the bleeding to RISC-V will accelerate: many of the customers of Arm simply don't have the profit margin to afford paying more for them. Arm has competitors in the higher priced segment (Intel/AMD) and they have RISC-V for the cheaper priced segment.

I understand why SoftBank wants to diversify their investment.

Yes and no.

If they aren't making money and aren't likely to be making a lot of money at any time in the future, it doesn't seem low - regardless of whatever impact you perceive. One of the problems that ARM faces is that people have alternatives or can create them. For example, you talk about Apple, but Apple is only licensing the instruction set. Instruction sets have some value, but the real value that ARM provides is in their core design. However, more players are looking to design their own cores. Apple already does and Qualcomm is looking to do the same. That would really harm ARM's revenue stream.

Did ARM bring about these paradigm shifts or were they merely a convenience? Apple started using ARM in their iPhone because it was a convenient and affordable low powered processor, but if ARM had wanted more for their IP, people wouldn't have used ARM in the first place.

It's one of the reasons that companies like to bait-and-switch if they can. Get people using your product for cheap and then hike the price once everyone is using your thing. You then argue that you've created so much value via your product - but everyone would have just used something else if you'd charged a lot from the beginning.

ARM's in a tough place where Apple has an architecture license and makes their own cores and others are looking to follow that lead. As ARM tries to generate profits, others are there to stop that from happening. I'm not as bullish on RISC-V as many on here (it just takes a long time to get to the level that high-end ARM chips are at), but it could certainly start eliminating some business and provides a hedge against ARM increasing prices.

CNBC is saying ARM's PE ratio is 170. Where's its growth going to come from to justify that? With Nvidia, we see major growth. Nvidia has a differentiated product with some lock-in around CUDA and such. ARM's largest customers are looking to pay ARM less money going forward. If ARM loses its suit against Qualcomm/Nuvia and Qualcomm stops using ARM's cores, what happens to ARM's revenue/profits?

Some businesses that have a large impact only have that large impact because they were offering an affordable product. That affordability limits their valuation. Without that affordability, the world would have gone in another direction. Right now, ARM is trying to figure out how to pump up its profits given the slight amount of lock-in it commands. However, I think it's more likely that ARM will just hasten companies moving to their own core designs and investing more in RISC-V.

> Makes Twitter/X seem hugely overvalued

Fortunately the valuation of this one is being corrected

Yeah, Softbank... They evaluated WeWork at ~50 billions and a few months later it was worth almost zero. If you work with SoftBank prepare to lose everything.

I mean in that case Softbank and their LPs lost, retail did not. Culty employees didnt really either.

In this case Softbank and LPs win it all back and dumps their shares on retail.

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