July 12, 2023: According to sources cited by the Financial Times, British semiconductor and software designer Arm is discussing with Nvidia to secure the company as a significant investor in its upcoming initial public offering (IPO). Arm aims to make its shares publicly traded as early as September, and this partnership with Nvidia could be a crucial step in achieving that goal.
If successful, Arm’s IPO would mark one of the most valuable public offerings in the U.S. since the electric vehicle (EV) manufacturer, Rivian went public with a market capitalization of $70 billion in 2021. According to the same sources, Nvidia’s investment is expected to range in the low hundreds of millions of dollars.
The negotiations revolve around the per-share price for the IPO, with Nvidia pushing for a valuation that would place Arm’s worth between $35 billion and $40 billion. However, Arm is seeking a higher valuation of $80 billion. These discussions follow Nvidia’s canceled $66 billion acquisition of Arm in February 2022 due to concerns raised by U.S. and European regulators. The Federal Trade Commission warned that the deal could harm global competition by giving Nvidia an advantage in regions and products where Arm-based products are already utilized and access to sensitive information from Arm’s licensees.
The cancellation of the acquisition prompted Arm to pursue an IPO in New York, with plans to raise between $8 and $10 billion, as reported last April. In its search for anchor investments, Arm has been talking with multiple companies, including Intel, Alphabet, Apple, and Microsoft.
Bringing Nvidia on board as a strategic investor would support Arm’s IPO plans and benefit its parent company, SoftBank. SoftBank acquired Arm in 2016 after suffering significant losses from failed startup investments. The involvement of prominent investors like Nvidia would help strengthen SoftBank’s position. To ensure a smooth process, Arm and Nvidia have contacted U.S. regulators to address any concerns related to the potential investment.
The technology sector has continued its growth in 2023, attracting significant investment and witnessing mergers. PwC’s mid-year report highlights the increasing interest in AI technology, leading organizations to expand their product offerings and venture into new markets. Additionally, software and IT services, including cybersecurity, have experienced substantial growth this year.
Despite regulatory scrutiny, semiconductor deals are expected to drive future investment, supported by laws such as President Joe Biden’s CHIPS Act and the growing interest in generative AI. The report emphasizes that research and investment will be stimulated in expanding chip manufacturing capabilities. Notably, AI will play a prominent role in Arm’s growth plans, and Nvidia’s expertise in this area would be instrumental. Nvidia’s recent launch of the Grace Hopper “Superchip,” designed specifically for large-scale AI applications, has further solidified its position as a leader in AI technology.
The geopolitical tension between the U.S. and China over semiconductors has been recurring. The U.S. introduced export controls last October, which included measures to limit China’s access to semiconductor chips produced with U.S. equipment. In response, China tightened restrictions on exporting gallium and germanium, essential elements used in semiconductors and other technological applications.
Nvidia’s Chief Financial Officer, Colette Kress, has warned about the potential long-term adverse effects of restrictions on the sale of AI semiconductors to China. Such restrictions could hinder the ability of the U.S. chip industry to compete and lead in one of the world’s largest markets, impacting future business and financial results.
As negotiations continue and preparations for the IPO progress, the involvement of Nvidia as a key investor in Arm’s IPO could shape the future landscape of the semiconductor industry and bolster Arm’s growth ambitions in the AI sector.