ARM $54B IPO: THE YEAR’S BIGGEST SPLASH
GRIT
14 Sep
Good Morning!
Good Morning Everyone! On today's agenda we’re talking: U.S. inflation is on the rise 📈, ARM gears up for the year's biggest IPO 🚀, and European Central Banks may hike rates 💶.
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Let’s get into it!
INFLATION: SURPRISE UPTICK
Source: Bloomberg
The U.S. Consumer Price Index just threw us a curveball, rising to a hotter-than-expected 3.7% in August, compared to the 3.6% forecast and last month's 3.2%. Ouch.
What's Up? 📈 Rent, motor-vehicle insurance, and air travel are all on the rise. New-car prices accelerated for the first time in five months, and energy costs are surging—especially gasoline, which shot up by more than 10% last month. Utility bills are also climbing, and grocery prices increased, albeit at the slowest annual pace in two years.
What's Down? 📉 Used cars and, surprisingly, tickets to concerts and movies. Perhaps it's a good time to trade in that old car and catch a show?
The Silver Lining: 🌥️ Shelter costs, which make up about 30% of the CPI, increased by just 0.3%—the smallest gain since early last year. If housing costs continue to cool, we might be on track for a downward trend in inflation. Fingers crossed! 🤞
GRIT TAKE: With inflation ticking up, the Fed is now under even more pressure to raise rates at next Wednesday's meeting. They can't afford to let inflation run wild and risk looking like they've lost the reins—a scenario we've already seen unfold in Canada and Japan. Oddly enough, the likelihood of a rate hike actually dipped from 7% to 3% post-CPI report. It's a head-scratcher, for sure. All eyes—and breaths—held until Wednesday. 🤔👀
ARM $54B IPO: THE YEAR’S BIGGEST SPLASH
Source: Bloomberg
ARM is making its public debut today, and it's no small affair. The company aims to raise $4.9 billion, valuing it at an impressive $54.5 billion and marking this year's largest IPO. The offering was oversubscribed by more than 10 times, with shares pricing at $51—the upper end of the $47-51 range.
This marks the most significant tech IPO since Uber's 2019 debut. While ARM's entrance is a major event in the tech world, it still doesn't eclipse the record-breaking IPOs of Alibaba at $25 billion in 2014 or Meta's $16 billion splash in 2012.
Why the strong interest? ARM's technology is ubiquitous, powering chips in 99% of smartphones and finding applications in cars, computers, and other electronics. The company is also well-positioned to capitalize on the growing demand for artificial intelligence chips.
Notably, ARM has set aside more than $700 million of stock for industry giants like Intel, Apple, Nvidia, Samsung, and Taiwan Semiconductor as part of the IPO.
A bit of history: Softbank attempted to sell ARM to Nvidia for $40 billion in 2020 but failed. If today's valuation holds, it appears that missed deal was more of a fortunate detour than a setback.
ARM's performance today is a critical litmus test in a year where the IPO market has been anything but sizzling. While 2022 has already seen 72 IPOs—eclipsing last year's total of 71—it pales in comparison to 2021's red-hot 397 debuts. For some perspective, the five-year average from 2016 to 2020 sits at a more subdued 168 IPOs.
GRIT TAKE: Hold onto your wallets, folks! ARM's valuation is stratospheric, clocking in at 100x last year's profits of $500M. And let's talk growth—or the lack thereof. They're forecasting a modest 6% uptick, which hardly justifies such a sky-high multiple. As for profit margins? A ho-hum 20%, right in line with the tech sector average, despite burning through $2B annually on R&D.Here's the kicker: ARM is priced 3x higher than Nvidia, a stock already considered overvalued by many. So, as much as I love a good IPO spectacle, I'm sitting this one out. Too rich for my blood! 💸
EUROPE: IS A RATE HIKE IMMINENT?
Source: Bloomberg
Bank might just hike rates today, with the odds now at a whopping 70%—a big leap from just 20% a month ago. But here's the twist: economic activity is dragging its feet. Year-to-date growth is a measly 0.5%, falling short of the 0.9% forecast and way down from last year's 1%. Last quarter? A barely-there 0.1% growth rate.
Inflation isn't helping, stubbornly hovering above 3%, and let's not even talk about how oil prices are piling on the financial pain. Some economists are waving the stagflation warning flag. To top it off, high prices are squeezing domestic spending, and a slowdown in China is putting a dent in exports. So yeah, it's a bit of a mess.
GRIT TAKE: Here's the pickle: both the U.S. and Europe are wrestling with the same ugly duo—stubborn inflation and sluggish growth, with Europe lagging even further behind. The kicker? Oil prices have surged a staggering 30% since their June high, and there's no end in sight. Demand from the U.S. and China—the world's top oil guzzlers—remains robust, while OPEC+ keeps tightening the spigot with extended production cuts. It's like a financial thriller, but we're all in it.
Coming Up This Week…
TODAY: ARM's Market-Shaking IPO Debut! 🔥 A Triple-Header—U.S. Retail Sales, PPI Data, and the ECB's Rate Decision, plus Adobe's Earnings Report
Friday: United Auto Workers Could Rev Engines for a Strike Over Pay & Perks 📢
Headlines You Need To Know:
China cuts reserve requirement ratio for second time this year
Musk, Zuckerberg, Gates, and others have senate hearing about AI
Caesars paid ransom after cyber-security attack
Senator Mitt Romney will not run for re-election
What is shadow banking? Unpacking the risks for China
Apple ordered to pull some iPhones from shelves
Federal Judge rules against DACA
Putin and Kim Jong Un find common ground
Howard Schultz steps down from Starbucks board
Citi plans job cuts as it revamps top management structure
Drone startup Yield valued at $2.5 Billion in new round
UK housing market slumps deepens
Just for fun…
Ryan Reynolds has a business empire
Source: Reuters
You know Ryan Reynolds for being a famous actor, but did you know that he has built a business empire? Reynolds has made investments in tons of business ventures that include liquor, sports, finance, and telecommunications. These have all led to multi-million dollar returns. In 2018, he bought a huge stake in Aviation Gin and two years later the company sold for $610 million. In 2019, Reynolds became an owner in Mint Mobile which sold to T-Mobile for $1.35 billion. Even though he said that he knows nothing about fintech, he became an investor in WealthSimple and Nuvei which are both now valued in the billions. As a big sport fans, he has acquired stakes in the Ottawa Senators and Wrexham AFC. Celebrity Net Worth says he is worth $350 million as of today.
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