Arm Prepares for IPO as Microsoft Modifies Activision Agreement

Investing Overview: Arm’s IPO Plans, Tech Stock Resilience, and Corporate Moves

Chip designer Arm has announced its intentions for a highly anticipated initial public offering, although specifics regarding its valuation remain undisclosed. Meanwhile, technology stocks continue to demonstrate resilience amidst rising bond yields, fueled by growing excitement over Nvidia’s upcoming quarterly earnings report. Additionally, Microsoft is making adjustments to its merger plans with Activision Blizzard to satisfy regulatory requirements in the U.K.

1. Arm Files for Nasdaq IPO

Arm, owned by Softbank, has released a preliminary prospectus for a Nasdaq listing, signaling the start of an initial public offering (IPO) that may mark one of the largest U.S. floats in nearly two years. Softbank recently provided a timeline for the IPO, aiming to leverage the rising enthusiasm surrounding generative artificial intelligence. Arm stands to gain from the AI surge, as its processor designs are integral to chips created by major tech companies including Apple and Nvidia, earning royalties on each chip sold.

Based in Cambridge, U.K., Arm estimates that around 70% of the global population uses its products. Its technology accounts for nearly 49% of a total addressable market valued at approximately $202.5 billion at the end of the previous year.

While the company has not disclosed the number of shares to be issued or their valuation in its filing with the U.S. Securities and Exchange Commission, SoftBank recently acquired the remaining 25% of Arm it did not already own for around $64 billion. At this valuation, Arm could become the highest valued company to launch an IPO in the U.S. since electric vehicle maker Rivian in 2021. However, the firm cautioned that the transaction price should not be regarded as indicative of the potential trading price for the upcoming offering.

2. Futures Climb Despite Surge in Treasury Yields

U.S. stock futures inched upward on Tuesday following mixed results on Wall Street as bond yields surged. By early Tuesday morning, futures showed modest increases, with various indexes recording small gains.

Concerns about the Federal Reserve potentially maintaining higher interest rates to mitigate inflation have led to a renewed sell-off in U.S. bond markets. The benchmark yield reached its highest point since November 2007. However, the tech-heavy index saw its largest gain this month, bolstered by excitement over Nvidia’s upcoming earnings, which helped counteract the impact of rising yields on technology stocks that heavily rely on debt for growth.

Anticipation is building for an annual symposium where Fed Chair Jerome Powell is expected to discuss the central bank’s inflation outlook.

3. Microsoft and Activision Revise Merger Proposal

Microsoft has put forth a revised proposal for its merger with Activision Blizzard in an attempt to secure approval from U.K. competition authorities. As part of this new deal, Activision will divest its cloud streaming rights outside of the European Economic Area to French competitor Ubisoft.

The restructuring is aimed at satisfying the U.K.’s Competition and Markets Authority, which has emerged as the final regulator blocking the $69 billion merger, citing concerns about innovation within the cloud gaming sector. Microsoft has stated that the fresh proposal differs significantly from the original, but the CMA has indicated that this revised deal still requires careful evaluation and does not yet have approval.

4. Earnings Reports from Lowe’s and Macy’s

Lowe’s and Macy’s are set to release their quarterly earnings on Tuesday, with investors eager to assess how these retail giants have fared amid a recent slowdown in consumer spending on nonessential goods.

Earlier this year, Lowe’s reduced its sales and earnings outlook, anticipating a decline in spending on major home improvement projects. However, CEO Marvin Ellison has expressed confidence in the medium- and long-term prospects of the business, attributing this to an increasing number of customers investing in repairs on aging homes. Concerns regarding input costs appear to be easing, according to recent commentary from Lowe’s rival.

Macy’s has also lowered its annual sales and income projections, indicating a need to adopt a cautious approach given a spring slowdown in shopper spending. The company foresees a likely need for additional discounts to stimulate demand in a fluctuating economic environment characterized by cooling inflation.

The highlight of the earnings calendar is set for Wednesday when chipmaker Nvidia will release earnings that could showcase the momentum surrounding generative AI.

5. Mixed Oil Prices Ahead of U.S. Inventory Reports

Oil prices remained stable on Tuesday as traders evaluated the potential impacts of a sputtering economic recovery in top crude importer China and awaited further insights into U.S. monetary policy at the upcoming Jackson Hole symposium.

Expectations suggest that demand for oil in the latter part of 2023 will largely depend on China. However, worries have emerged about the adequacy of support from Beijing for a sluggish post-pandemic recovery phase.

Later in the day, the American Petroleum Institute will release data concerning U.S. crude oil and gasoline inventories, followed by corresponding insights from the Energy Information Administration on Wednesday.

By early Tuesday, crude oil futures were mostly unchanged, while another key contract saw a slight decline.