British chipmaker ARM went public on the New York Stock Exchange on Thursday, surging 25 percent. Japan’s Softbank bought it out of the London Stock Exchange in 2016 for $31 billion. In 2020, Nvidia wanted to buy it at 40. Now the demand to buy shares became greater than the supply, at a valuation of 55.
A quarter of the company’s sales are in China. So really, one should back away from the geopolitical risk that comes with owning shares in ARM. New export restrictions from the US and boycott of foreign companies by China could hit ARM so badly that it stings.
The other disadvantage of ARM is that they are so dependent on their mobile manufacturing customers. They completely dominate that market. But it is a market that is not growing so strongly anymore. So what explains the fascination with the company? Why are investors flocking to this chip maker like wasps to ice cream?
Artificial Intelligence
When interest rates rose, tech companies took an extra hit. At least those who had their profits in the future. All of a sudden, investors started talking about profitability and no longer only cared about growth. But the wave of cuts had barely subsided before the next big tsunami swept in: Generative AI. Chat GPT and so on.
Now, more than ever, everyone wants to be an “AI company”. In the hope that it will attract both talent and money. On the stock market, Nvidia, which manufactures a large part of the hardware that AI development requires, has surged by over 200 percent.
In order to expand away from the mobile market, ARM has also invested in AI, among other things with a processor specially developed for artificial intelligence.
ARM’s successful comeback on the stock exchange may be the starting point for more IPOs after a period of waiting on that front. AI-spiced IPOs, just in case.
Is AI overhyped in the stock market or are we just at the beginning of the bull run? Hear the experts in the clip above.