Shares of Arm Holdings (ARM) are the benchmark around the euphoria around artificial intelligence semiconductor stocks. ARM shares are up an astounding 72.33% YTD. However, a warning looms.
Arm has only 9.5% of its outstanding shares available for trading. Six months after its September initial public offering, the lockup period expiration allows insiders to sell. The lockup period expired yesterday, on March 12, 2024. The future of its share price rests on one major shareholder: Softbank.
Softbank holds 930 million shares, or a 90% stake, in Arm. The flood of shares in the coming days is a true test of the AI mania’s resiliency. The stock market will have more shares available for Arm. Insiders may panic-sell if the stock falls quickly.
A sell-off would trigger moderate panic among the AI chip stocks. AMD has a higher risk than Nvidia (NVDA) of falling by more. The former is a distant second place compared to Nvidia in capturing the AI server market share. This is similar to the GPU (graphics card) market share dynamics in the desktop gaming segment.
Softbank may choose not to sell too many shares all at once. It held Alibaba (BABA) and Coupang (CPNG) for many years before it started to sell aggressively. Furthermore, Softbank does not need to raise as much money, since its venture capital holdings likely recovered in value.
