Amazon is expected to be an anchor investor in one of the largest IPOs this year, and it could help boost the company's cloud business.

Bloomberg is reporting that Amazon (AMZN) is in talks to become an anchor investor in the initial public offering (IPO) of Arm Ltd., a British semiconductor and software design company.

KEY TAKEAWAYS

  • Amazon is reportedly in talks with SoftBank, a Japanese conglomerate, to become an anchor investor in the IPO of U.K.-based semiconductor company Arm Ltd.
  • Amazon's partnership could help entrench its dominant position in the global cloud computing market and prevent rivals such as Microsoft's Azure from taking away market share.
  • The IPO, which is expected as early as next month, could be one of this year's biggest, raising up to $10 billion in capital.

What's Arm Got To Do With AWS?

Amazon's cloud-computing arm, Amazon Web Services (AWS), already works with Arm to produce the AWS Gravitron processor.1 A more involved partnership with Amazon could prove to be lucrative for Arm given AWS's dominance in the global cloud computing market.

(AWS) is the world's biggest provider of cloud services with a 32% global market share as of the first quarter. Microsoft's (MSFT) Azure and Alphabet's (GOOGL) Google Cloud had the second and third-highest shares at 23% and 10%, respectively.2

For Amazon, it's a chance to cement its dominance in the cloud business. While AWS's market share has held generally steady over the years, Microsoft's Azure has been rapidly catching up, increasing its market share by 10 percentage points since 2017.3

Arm's Race For Anchor Investors

SoftBank (SFTBY), a Japanese conglomerate which has owned Arm since 2016, has reached out to several companies as it seeks to draw up funds for Arm's IPO, which is expected as early as September.

While SoftBank initially reached out to major chipmakers like Intel (INTC) and Nvidia (NVDA), it's since expanded its search for investors to big tech companies like Apple (AAPL), Amazon, and Google parent Alphabet, whose products heavily utilize semiconductors.4

A Boost for the IPO Market?

Arm's prospective IPO will likely be one of this year's biggest, and could raise up to $10 billion.5

Such an offering could provide a needed boost to the global IPO market, which has been struggling since the start of last year.

A bear market in stocks, rising interest rates, and general economic uncertainty have slowed demand for new offerings. There have been 615 IPOs worldwide so far this year, generating roughly $61 billion in capital. These figures are down 5% and 36%, respectively, from the first half of 2022, according to consulting firm EY.6

While the U.S. IPO market has bounced back slightly from last year's lows, activity remains far below its 2021 peak. The first half of 2023 saw 63 IPOs in the U.S., up from 51 in the same period last year but well below a peak of 416 through all of 2021. Proceeds have also fallen precipitously, to $10.1 billion in the first half from $155.8 billion in 2021, EY reported.7

Amazon shares fell 1% in early trading Wednesday. They're up by more than two-thirds so far this year, while those of Arm owner SoftBank have risen 14% over the same period.

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