Arm Holdings’ stock market debut was a smashing success, making it considerably simpler for owner SoftBank Group to return to its original acquisition-hungry state.

The British chip designer’s shares increased by about 25% on the first day of trading, more than doubling the $32 billion that SoftBank paid to purchase it in 2016. The massive tech investment company retained 90.6% of the company despite raising nearly $5 billion from Arm’s offering.

SoftBank founder and CEO Masayoshi Son, who is notorious for debt-fueled acquisition binges, signalled in June that the company was returning to “offence mode” as he emphasised the promise of artificial intelligence. That comes after a year in “defence mode” during which tech valuations collapsed due to rising interest rates and unease in the world’s banking system.

Yoshimitsu Goto, his chief financial officer, has adopted a more cautious tone, stating last month that the company was hesitantly making a few fresh investments.

Whether or whether Son picks up the pace of acquisitions again, having shares of Arm listed on a public exchange will make it easier for SoftBank to utilise the stock as collateral, will probably boost its credit rating for better borrowing terms, and will make it easier for it to obtain the margin loans Son prefers, according to analysts.

There were no comments available from Softbank on its acquisition strategy.

For SoftBank to improve its deteriorating credit standing, increasing the percentage of its net asset value (NAV) held in listed shares is a crucial requirement, according to SemiAnalysis analysts.

“Their hope is that Arm’s share price will be higher so they can mark up their NAV and help repair their credit rating,” they stated in a message to subscribers.

When S&P Global Ratings further lowered SoftBank’s long-term rating into junk territory in May, SoftBank’s reputation took a hit.

In order to stabilise its financial sheet, SoftBank has sold off assets in public firms, namely Chinese e-commerce behemoth Alibaba, increasing its exposure to unlisted companies, which are more difficult to evaluate.

The collapse of the 2021 tech bubble, which occurred at the same time as SoftBank’s most recent investment binge, has reduced the value of its Vision Fund 2 to $33.2 billion from the $51.8 billion total cost of the assets.

Better results were achieved by Vision Fund 1, which saw gains of 14% over acquisition expenses.

Given the low valuations and relative scarcity of investment for the early-stage firms Son generally targets, several observers believe that if Son indulged his acquisitive tendencies now, his timing may be fortunate.

Being among the biggest funds in the market has advantages for SoftBank as well.

“They have some firepower behind them that a lot of funds in venture capital don’t,” said PitchBook venture capital analyst Kyle Stanford.

“If they’re investing in early stage they will have a little bit of price elasticity to get into the deals they believe they need to be in,” he said.

Analysts, however, doubt whether Son, who is also notorious for bad investments like flexible workspace company WeWork, can repeat the success he witnessed with Alibaba.

Although interest in AI has already reached amazing heights, with the exception of chipmaker Nvidia, it is difficult to pinpoint which companies will stand to gain significantly from its uptake. Few of the companies that SoftBank has invested in have shown that AI is commercially useful, according to analysts.

Additionally, there is no assurance that Arm’s shares will remain high. According to some analysts, tech businesses may be poised for a correction as valuations inflated by AI euphoria may have reached their peak.

“There are signs that tech is getting tired and overvalued,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors.

Higher lending rates—the U.S. benchmark rate is 5.5%—mean that target companies must expand even more to make acquisition expenses justifiable, requiring investors to take a more careful approach.

“This should also apply to SoftBank. But they run their own playbook,” said PitchBook’s Stanford.

(Adapted from Reuters.com)