© Reuters. FILE PHOTO: A smartphone with a displayed Arm Ltd logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
(Reuters) -Shares in Arm Holdings (NASDAQ:) were down 5.4% on Tuesday, on track for their third decline out of the stock’s first four sessions as a listed company, as investor interest faded in the biggest initial public offering for the year so far.
With short sellers looking to profit from the stock, it last traded at $54.85 after touching a high of $69 on Friday. The chip designer, in which Softbank (OTC:) holds a roughly 90% stake, closed at $63.59 on Thursday, which was almost 25% higher than its IPO price of $51.
Also on Tuesday, the Philadelphia semiconductor index was down 1.2% as rising bond yields put pressure on growth stocks including the broader technology sector.
Investors were also monitoring grocery delivery service Instacart, another high profile IPO, which was due to start trading on Tuesday. Instacart was recently indicated to open at $39.11, well above $30 IPO price.
Data from analytics company Ortex on Tuesday suggested that short sellers had started taking bets against Arm stock, with slightly more than 5 million shares of the newly listed chip designer “on loan,” or 2.7% of the stock’s free float. Short sellers need to borrow a stock to short it, and the relationship between shares on loan and shorted is normally quite close, according to Ortex. Initially with a new stock “there is often a lot of data missing, so there is a reasonable expectation that the real number is higher,” Ortex co-founder Peter Hillerberg said in an email. Arm’s average cost to borrow, which is the interest rate for borrowing, is currently at 12.76%, according to Ortex. By comparison, a similarly shorted stock, Tesla (NASDAQ:), has a cost to borrow at 0.48%, Ortex said. Arm’s higher cost to borrow “can be an indication that the demand to borrow, and short, the stock is high,” Hillerberg said.
Analysts from Bernstein and Needham had published less than optimistic notes about the chip technology company and options on the stock starting trading on Monday at a brisk pace, with many investors positioning for further downside.
Late on Monday, Arm announced that its underwriters had exercised their full over-allotment option to buy an additional 7 million American depository shares (ADSs), boosting the total raise from the IPO to approximately $5.2 billion.
