While SoftBank-backed Arm’s upcoming IPO may offer some hope in the slumping tech IPO market, experts believe it’s more of an anomaly than a sign of a new boom. Arm, a chip design company targeting a public valuation of $60-70 billion, is notable for its massive scale and the relevance of AI and semiconductors in the marketplace. However, that doesn’t mean a spate of IPOs is imminent.
Although there has been some recent IPO activity, including the Cava and Oddity IPOs, these companies are not VC-backed tech companies. Tech IPOs have historically prioritized growth over profitability, which makes them unique. Jay Ritter, a professor at the University of Florida and a well-known IPO expert, predicts that IPO activity will not reach the levels of 2021, the busiest IPO market since 2000.
The technology sector experienced a “reboot” in 2021 due to interest rate hikes, rising inflation and an uncertain macroeconomic environment. Technology companies shifted their focus from growth to efficiency and cost reduction. Reasonable growth is expected going forward, with overvaluations needed to trigger a real boom.
As pundits wait for companies like Stripe, SpaceX, and Instacart to potentially go public, the pressure is mounting for companies to take the plunge. Downsizing of IPO plans can result in future value destruction and make a strategic case for an IPO at a lower valuation. John Chirico, head of banking, capital markets and advisory at Citi, expects IPO volume to increase in early 2024.
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