In a significant development for the IPO market, UK-based chip designer Arm witnessed an impressive 25% surge in its stock value during its Nasdaq debut on Thursday, marking the largest initial public offering (IPO) since 2021. The long-awaited public offering comes after a nearly two-year hiatus in IPO activities, rekindling investor enthusiasm. Arm’s debut propelled the company to a market capitalization of approximately $65 billion.

Trading commenced in New York on Thursday afternoon under the ticker symbol ‘ARM’ (ARM) with 95.5 million shares on the market. The opening price of $56 per share already represented a 10% increase above its initial offering price, and the trading session concluded with a closing price of $63.59.

This robust performance solidifies Arm’s position as the most substantial IPO of the year, surpassing the last significant IPO in 2021, which featured electric truck manufacturer Rivian.

Investors welcomed Arm’s Nasdaq debut, contributing to a Dow Jones Industrial Average gain of more than 330 points, marking the index’s most impressive performance since August.

It is noteworthy that SoftBank, the Japanese conglomerate, which acquired Arm for $32 billion in 2016, will retain approximately 90% of the company’s shares.

While the name Arm might not be instantly recognizable to many Americans, its products have an everyday presence in their lives. Tech giants like Apple (AAPL), Samsung, Nvidia (NVDA), and Google rely on Arm’s designs and instructions to develop their semiconductor chips. Arm plays a pivotal role in the manufacturing of smartphones, laptops, gaming consoles, televisions, and GPS devices.

Leading tech companies, including Apple, Google, Nvidia, AMD, Samsung, and TSMC, expressed their interest in participating as cornerstone investors in Arm’s offering, according to a filing made last week.

Arm’s CEO, Rene Haas, expressed his satisfaction with the IPO, stating, “We’re very happy about today. It’s a great day for the company…Our bankers say if you can price at the high end of the range and go out of that number, it’s a good thing. That’s where we ended up, and we couldn’t be more pleased.”

Opening the Doors for Future IPOs

The IPO market has experienced a notable decline in deal activity, attributed to recessionary concerns and elevated interest rates, resulting in reduced valuations. Arm’s successful IPO is seen as a litmus test for various tech companies awaiting their turn to go public. Wall Street experts view it as a potential catalyst that could rejuvenate the IPO landscape.

Goldman Sachs reported a 20% decline in investment banking revenue in the second quarter of 2023, with overall profits dropping by 58% compared to the previous year. Goldman Sachs CEO David Solomon attributed these figures to clients’ cautious approach in the face of economic uncertainty.

However, industry analysts believe that numerous healthy companies are eager to make their public debut but are waiting for the right moment. Arm’s triumphant entry into the public market could serve as a precedent, motivating other companies to follow suit.

Dave Sekera, Chief US Market Strategist at Morningstar Research Services, emphasized the significance of Arm’s IPO, stating, “This is a big deal. The big takeaway here for investors, even in the public markets, is that if this IPO is successful, that opens up the floodgates for a wave of new IPOs. That would provide a positive market sentiment for the overall stock market.”

Goldman Sachs leads the underwriting efforts for Arm’s IPO, and the bank’s shares experienced a 2.9% increase in value on Thursday, reflecting the positive market response to Arm’s successful debut.