April 24, 2024

Shares of Arm Holdings, the British chip designer backed by SoftBank Group, jumped 2.1% to $129.50 on Tuesday. This comes as investors brace for increased trading activity following the expiration of the crucial lock-up period tied to the company’s blockbuster initial public offering (IPO). 

The development has raised expectations of heightened volatility and potential selling pressure in the stock.

The IPO Lock-up Period and Its Role

IPO lock-up periods are standard practice, typically lasting up to six months after a company goes public. During this time, company insiders, executives, and pre-IPO investors are prohibited from selling their shares. This restriction aims to prevent a sudden flood of shares from hitting the market, which could destabilize the stock’s price.

In Arm’s case, only 9.5% of its outstanding shares have been available for public trading since its much-anticipated IPO in September 2022. As the lock-up period expired on Tuesday, March 12, a larger pool of shares is expected to become available for trading, potentially altering the supply-demand dynamics.

For instance, the Japanese technology conglomerate SoftBank Group holds a staggering 90% stake in Arm. This is equivalent to about 930 million shares, according to data from the London Stock Exchange Group (LSEG). 

This massive ownership position has raised concerns and speculations about SoftBank’s potential moves regarding its holdings.

The big unknown factor pertains to SoftBank’s intentions regarding the 90% of the chip company that it still owns,

said Michael Ashley Schulman, Chief Investment Officer at Running Point Capital, in an emailed statement to Reuters. Any decision by SoftBank to divest a significant portion of its stake could significantly impact Arm’s share price and trading volume.

Arm’s Strong Performance and AI Tailwinds

Despite the lock-up uncertainty, Arm’s shares have surged by an impressive 68% since the company reported better-than-expected quarterly results in February. 

This stellar performance has been fueled by increased demand for chip designs tailored for artificial intelligence (AI) computing, a rapidly growing and lucrative market segment.

Arm’s positioning in the AI space and its ability to capitalize on this burgeoning trend have likely contributed to investor enthusiasm and the stock’s upward momentum. This is potentially offsetting some of the concerns surrounding the lock-up expiration.

On Tuesday, the volume of Arm’s shares traded was approximately 18.1 million, compared with the stock’s 25-day moving average volume of about 28.5 million, according to LSEG dataThis relatively thin float of shares available for trading can subject the stock to significant swings and volatility.

As more shares become available for trading after the lock-up expiration, market participants will closely monitor any potential selling pressure or increased trading activity that could impact the stock’s price movements. Even though Arm’s shares gained ground on Tuesday, the true impact of the lock-up expiration remains uncertain. 

So, vigilance’s still needed as the lock-up period has ended, and more shares are expected to flood the market. 

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