Initial public offerings (IPOs) are back, and Wall Street couldn't be happier. After 2022's bear market, it took a while for privately held companies to work up the nerve to return to the public markets to raise capital. Now, though, it appears that the floodgates are opening, and some high-profile businesses are lining up to get their opportunity to enter the IPO spotlight.
Arm Holdings (ARM) has already had a successful launch as a publicly traded company, but some believe that the IPO hype could give way to weaker stock performance from the semiconductor specialist. But today, most of the attention on Wall Street is on grocery delivery company Instacart, which has priced its own initial public offering and appears set to begin trading at some point on Tuesday. Here's the latest on both IPO stocks.
Instacart prices its IPO
Instacart continued to move forward with its initial public offering on Tuesday morning, announcing the final pricing for shares offered to those participating in the IPO. The stock went out at $30 per share, which was at the top end of the most recently anticipated range of between $28 and $30 per share. That range had increased over the course of the IPO process, reflecting fairly solid demand from investors.
However, many will see the IPO as far from a big success for Instacart. The grocery delivery specialist had raised money in the private market at valuations as high as $39 billion two years ago, when pandemic-driven demand for its services was at its highest. By contrast, the $30 share price implies a valuation closer to $10 billion, giving venture capital investors a potentially painful exit.
Nevertheless, many market participants are pleased that Instacart will break the logjam of venture-backed companies looking to go public. Arm Holdings, by contrast, was already wholly owned by Japan's SoftBank Group, and so the dynamics of its IPO were somewhat different. Yet the two offerings share the fact that only a relatively small fraction of outstanding shares will be available to the public at this time, which could potentially help support the stock price.
Arm stock stays volatile
Shares of Arm Holdings were down about 5% at the open on Tuesday morning. That followed up on a similar decline on Monday, as investors try to find equilibrium following an impressive IPO last week from the semiconductor maker.
Arm's IPO came out at $51 per share but immediately moved higher, climbing as high as $66 before closing its first day at $63.59. However, since then, the stock has been on the decline, giving back more than half of its gains while still staying above the official IPO price.
There's plenty of debate about Arm's potential. On one hand, Arm plays a key role in the electronics industry, with its processing chips and architecture found in many computers and mobile devices. Arm also has aspirations to capitalize on opportunities in the data center and edge computing areas, with high-performance technology that could help users adopt artificial intelligence and other cutting-edge features.
Yet some investors question whether Arm will capture these high-growth markets or remain weighed down in industry niches with less potential for future expansion. Moreover, a fairly rich valuation by some measures is making value investors nervous about the stock's upside potential.
IPOs always get a lot of attention, but they can present challenges for investors looking to make informed decisions about their investments. Often, it can be more comfortable to let the initial dust settle rather than making an impulsive buy of an IPO stock before you have all the information you'd like to know.
Originally published on Fool.com
