By Manya Saini and Caroline Valetkevitch
(Reuters) -Shares of SoftBank (TYO:9984)'s Arm Holdings closed a volatile session lower on Friday, a day after a stellar Nasdaq debut that valued the British chip designer at $65 billion.
The stock fell 4.5% to end at $60.75, after trading as high as $69 earlier in the session. Major U.S. stock indexes declined Friday as chipmakers dropped amid weak consumer demand concerns. The Nasdaq was down 1.6% and the S&P 500 fell 1.2%, while an index of semiconductors sank 3%.
On Thursday, Arm's shares closed up nearly 25% at $63.59, lifting hopes of an end to the drought in U.S. listings. The IPO had priced at $51.
Randy Frederick, managing director, trading and derivatives at Charles Schwab (NYSE:SCHW) in Austin, Texas, attributed the stock's turnaround on Friday to a combination of how much the shares had jumped in the previous session and skittishness on a generally weak day for stocks.
"It's not uncommon for any stock that shoots up quickly to see at least a little bit of profit-taking right after that, IPO or not," he said.
Some strategists said trading volatility in the stock may be tied to the limited number of publicly traded shares, as SoftBank continues to own about a 90% stake.
"Clearly there are investors interested in this company. But limited float issues of this type can be very volatile," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey. "Ultimately, it was pulled down at the end of the day by the weakness in Nasdaq."
Analysts said further trading volatility in Arm may be seen if the company draws more interest from AI-focused retail investors.
Options contracts on Arm Holdings will debut on Nasdaq's exchanges on Monday, giving investors a new way to bet on the fortunes of the year's biggest initial public offering.
Arm Holdings also is poised to be added to indexes such as the tech-heavy Nasdaq 100, although inclusion in the S&P 500 is unlikely, analysts said.
"The huge enthusiasm around trading suggests there is very much still appetite for high-growth names, and there's growing hope that the IPO market will now become more buoyant next year," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Arm told potential investors in New York when it began marketing the IPO that the cloud computing market could be an area of growth for it. Financials disclosed ahead of the IPO showed that Arm's full-year sales had fallen marginally.
It currently has just a 10% share in the segment that was expected to grow at an annual rate of 17% through 2025, mainly due to the advances in AI.
"Arm generates very high margin revenue, but much of that is put back into research and development," said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.
Analysts have said Arm can potentially ride on the coattails of Nvidia (NASDAQ:NVDA), which has been the biggest beneficiary of the AI boom, as its chips would need energy-efficient central processing units (CPUs) - a speciality of Arm.
Brokerage Needham started coverage on the stock with a 'hold' rating and said it awaits a better entry point.
"Arm can grow by capturing greater value from smartphones, but not enough to support upside from the stock's IPO valuation," it said.