Arm Already Looks Stretched

livemint.com:

Absence really does make the heart grow fonder—sometimes a bit too much. Arm got a roaring welcome back to the public market on Thursday. The British chip designer listed its shares on the Nasdaq almost seven years to the day after its acquisition by Japanese conglomerate SoftBank was completed.

That deal was valued around $32 billion. Arm closed its first day of trading Thursday with a market capitalization of more than $65 billion thanks to the stock having jumped nearly 25% from its listing price of $51 per share. A doubling of market value over seven years might look reasonable at first glance.

Investors have woken up to the value of semiconductor companies given the vital and growing role chips now play in everything from artificial intelligence to cars to household appliances. The production shortages sparked by the pandemic drove that point home even further; carmakers couldn’t ship $40,000 vehicles for lack of chips that often cost $1 or less. The PHLX Semiconductor Index has seen its value jump nearly fivefold since the day SoftBank announced plans to acquire Arm; the S&P 500 has merely doubled in that time.

Arm holds a particularly vital position in the semiconductor food chain. It licenses the basic designs for the types of processors that provide robust computing abilities while also consuming less energy than other chip architectures. That has made Arm-style chips widely used in portable devices such as smartphones, while its newer designs are gaining traction in places like the massive data centers run by cloud-computing giants that also have a strong economic incentive to reduce their power bills.