Arm’s Big Rally Doesn’t Compute

Wonders never cease: Arm’s pre-IPO promise to investors that the chip design firm would soon show decent growth turned out to be true! The company’s stock rocketed as much as 60% on Thursday after Arm reported a better-than-projected 14% revenue increase in December-quarter revenues. You might be thinking that 14% is hardly home run territory, particularly in tech. Still, given that Arm’s revenue was flat in fiscal 2023, and the company now projects that it will rise as much as 20% for all of fiscal 2024, this counts as good news.

Those who should be happiest are the investors who took a chance on Arm in last fall’s IPO, when few other companies dared to hit the public market. At the time, there was a lot of debate about Arm’s valuation. SoftBank—Arm’s owner, which sold a roughly 10% stake in the IPO—was hoping for a valuation of more than $60 billion, Bloomberg reported in August. That would imply a nice profit on the $31 billion it paid to buy Arm in 2016. The IPO didn’t quite hit that number: Arm went public at $51 a share, giving it a market cap of about $52 billion. Today, though, its stock closed at $113.89, up 48% on the day, giving Arm a market capitalization of about $119 billion. SoftBank CEO Masayoshi Son, whose company still owns 90% of Arm, must be spraying champagne in all directions.