Arm's red-hot stock debut captures the AI hype but it doesn't mean the IPO market has rebounded

• Arm stock soared 24% on its first day of trading following its massive IPO.
• Investors are cheering the debut, though some experts remain hesitant to use Arm to gauge the broader IPO market.
• Sky-high valuations and easy money during the pandemic fizzled out and the IPO market has been in a slump.

Arm's strong trading debut doesn't mean the initial public offering market will come roaring back. Experts say it's mostly a sign of the times and captures investors' massive hype around tech and artificial intelligence.

Arm closed 24% higher on its first day of trading on Thursday, with investors pushing the stock to $63.59 a share, well above its IPO price of $51.

The Softbank-backed tech company, which designs the chips used in most of the world's smartphones, raised about $4.9 billion in its public offering and secured a $54.5 billion valuation.

Daniel Morgan, senior vice president at Synovus Trust Company, told Insider that the stock pop Thursday points less to an IPO resurgence and more to the enthusiasm around artificial intelligence. It's no accident that the debut came relatively soon after Nvidia's blowout earnings.

"I hate to say this, but there are some similarities between this AI mania and the dot-com mania," said Morgan, a three-decade market veteran. "Any company that has anything to do with AI that hasn't gone public, I'm sure investment bankers are knocking on their door saying AI is hot, take advantage of it."

"There's always the question, is this a new renaissance in the IPO space? But I think the Arm deal is kind of specific," he added.

Morgan said the IPO market generally will likely remain more deal-specific around the red-hot technology sector. Upcoming deals that aren't tied to AI or tech, in his view, will see a more muted reception.

To Chuckie Reddy, a partner at fintech venture capital firm QED Investors, if Arm shares had traded down on their first day, that would have been bad news for the IPO market. But their big first-day surge doesn't necessarily open the floodgates for more public offerings.

"If it went poorly, that would be seen as a very negative signal, that the market wasn't ready for companies to go public," Reddy told Insider on Thursday. "But since it went smoothly, it's somewhat of a neutral signal. I don't think it materially increases the odds that others will go public."

Companies are still trying to shift their priorities from growth to profitability, he explained, and that transition hasn't fully happened yet. A number of portfolio companies at QED, he said, are planning to go public closer to the end of 2024.

Arm marks the biggest US initial public offering since 2021, back when liquidity was high and money was cheap. The broader IPO market has been stuck in a pandemic hangover, with the Federal Reserve raising interest rates, and both investors and companies have had to come to terms with lower valuations compared to a year or two ago.

The next deal on investors' radar will be Instacart, which was worth over $30 billion at the height of the pandemic. It is targeting a valuation in its upcoming IPO of just over $9 billion.