Arm set to set trading in the next few hours. The biggest imo of the year. Stock pricing at 51 a share. It was at the top end of the anticipated range giving it a market cap of 54 billion, 95 million shares were sold. Lets kick it off with leslie as they build towards that first trade. The indications coming in, interesting. You know, they started the morning at about 62. That was the first indication. Fell to about as low as 57, which implies a 12 gain relative to that 51 ipo price. And now its kind of around 57, 58. Still have time before it starts trading. We could expect another hour, hour and a half before its open and off to the races for arm. But its interesting, nonetheless, just to kind of see where these indications are coming on because just kind of gathering some color from investors and bankers and so forth. There was some dispute over exactly where to price this. Softbank doing all of the selling here. The question was, do you price it above the range or do you price it at the high end of the range . Ultimately, they chose that 51 at the high end of the range in order to hopefully garner some sort of day in the green here. Well see if theyve achieved that goal. So far indications are above handily above that 51 price. Again, we still have time. Well see where things go. Absolutely. The way its shaping up right now in terms of this anticipated gain at the open, its pretty much in the range of where underwriters will usually look to target, no . Yeah, absolutely. I mean, when you talk to bankers, kind of the ipo pricing 101, you dont want too big of a pop. Because that indicates that it was priced too low. You left money on the table. But you also dont want it to go down on the first day of trading because that affects sentiment and it can affect the ability for that stock price to get back to those ipo levels, which leaves a lot of the investors who bought in at the ipo price under water. There are a lot of dynamics at play. Softbank selling. Then you also have the customers that are buying into this deal, so you dont want to price it too high that you upset your customers either. So, there really is a delicate balance, especially when you think about the incentives of all the various players that are participating in this deal in particular. Leslie, stay with us. Lets bring in david who spoke with masa son and rene haas. Its an important day not just for arm but for the overall ipo market. Certainly if its seen as a success. As for the fundamentals of the company, theres no way even at 51 you could say it was cheap based on the last 12 months of earnings. And i did ask Ceo Rene Haas about that lack of growth year over year and why he believes it will ratchet higher. The yearonyear growth was not that great. If you look back over the last three years as we pivot strategy, were 3 yearonyear Going Forward for the last three years. But Going Forward, again, when you look at these mega trends of efficiency, software, complex a. I. , all having to run off batteries or low power devices, this is huge growth for us. Again, grace hopper is a great example of the kind of devices that can only be built on arm. Masa, it wasnt that many years ago that you were selling this company to nvidia, or at least had plans to sell this company to nvidia. That obviously did not happen. The price tag then was 40 billion. A lot of it was made up of nvidia stock. Whats changed between then and now . We did not want to really sell arm it was the covid that really made me go into the protective mode. So, i have to go protective mode and i have to choose the more conservative, careful operation of softbank. So we were selling to nvidia. The deal was actually onethird cash, twothirds was exchange of nvidia shares, a combined company of nvidia and arm. And i believe the combination of the two companies will be enormous. I believe in the future of a. I. And its really now getting proved. This is the beginning of big a. I. Time. Arm is going to have a big role in that. Of course, the question can be for somebody who believes so strongly in the future of a. I. , you know, does he have enough profits to show for it, mike. Even if that nvidia deal had gone through, given the enormous increase in price there, it would have been as much as 100 billion just on the stock portion for softbank, not to mention, obviously, Division Fund and whether and what they decided to do or not do when it came to at least generative a. I. , for example, which theyve not been involved with. Yeah. The struggle is when it comes to arm, its interesting as a potential investor. Very known quantitity, mature level, not a lot of growth at the moment but there are a category of stocks that are industry utilities or that provide some Industry Standard on an information look at the fico score company. The fair share makes you weep or msci and s p global. I think of these companies as Industry Standard, industry like network utilities. So, i dont know if arm qualifies but of its ip or if thats the way people are thinking about it. Its not really a chip play with the same kind of cyclical dynamics. Right. As they say, theyre in virtually everything and certainly 99 of phones, which is the key market for them. The continued question is can they successfully pivot to being a key part of the a. I. Future. And those chips powering it. Especially with others doing the same thing. Lets bring in deirdre bosa. Obviously, a longtime masa watcher, dee, and you said he needs a winner. He certainly does. Theres been a question hanging around masa for the last ten years, is he a really great investor or just lucky . It goes back to the dotcom boom and bust of 2001 and the bet he made on a little known chinese ecommerce company, alibaba that turned into more than 200 billion, seen as one of the greatest investments of all time. That has sort of created this legend and stature around masa son that enabled him to come back into the Venture Capital markets with a vengeance with vision fund 1 and vision fund 2, but he hasnt been as lucky since then, since about 2006. Hes had some highprofile losses like wework. He needs this. I was listening to your discussion. Is this going to be sort of is arm going to be the play that proves that he knows what hes doing in Artificial Intelligence . There are many cases to show that he hasnt been able to execute on this vision. Certainly hes been talking about Artificial Intelligence for many, many years before many others in the market were talking about it but he made an investment in nvidia in 2017 and sold it a year later. He made more than 3 billion. That would have been tens of billions of dollars had he held on or had he got through that acquisition, nvidia of arm. So, a lot is on the line for him. He sort of introduced this idea in Venture Capital markets of spray and pray. He had 100 billion to play with with that first vision fund. And the idea was invest in as Many Companies that supports your thesis as possible. And one of them is going to turn out to be this outsized winner like an alibaba. Thats what hes been doing. We havent seen that quite yet. Theres also a difference between Artificial Intelligence and generative a. I. This whole shift in the magnificent seven, the huge upside weve seen in markets so far this year has been around generative a. I. Is it enough that arm may be a. I. Adjacent, not a. I. Centric. Some other bets as well like cruz, one of the leading robo taxi companies. He sold out of that so he does need this. I wonder how hell be judged given his duration, right, his management duration. Weve joked about it. Longer than most. Yeah. He said hes solely focused on a. I. You heard his comments in terms of what he believes society will look like. Hes have positive on that. You know, listen, i mean, dont forget, sprint obviously owned that successfully after many attempts, merged it with tmobile, benefitted from that deal. Remember, they had a softbank, also, a very important provider of Wireless Services in their home of japan. But deirdres points are important and salient ones. You know, hes not put up the numbers you would have anticipated. Particularly given he seemed to be in the right area, kind of had the right expectation but didnt seem to execute on it. Mike, is it like the yankees where this seasons tough but you got a lot of rings . The yankees had the final win in like 14 years. Generally, having extreme and persistent techno optimism and spreading your bets around is going to get you a win in the type of market phase weve been in for a while. Not being particularly value sensitive. Not necessarily trying to trade in and out. I also think we have to keep in mind how even the concentration of appreciation in the nasdaq has been from kind of the acknowledged winners. Microsoft is the Second Largest Company in the s p 500. You know, it was the second biggest 25 years ago probably, right . So, its not as if looking for the next new thing has been the way to stay ahead of the question is today the manifestation of green shoots the street has been talking and wishing for for the last six months. Yeah, it cant hurt, carl. Obviously, if this deal the stakes are high. If this deal doesnt go well and investors who purchased that ipo at the ipo price are suddenly under water, that doesnt bode well for the other deals that are marketing their road shows currently and the other ones who have recently filed. It could open the possibility for others to dip their toes in as well. Its distinguished with how this company is structured versus other ones out there. This isnt your quintessential total Addressable Market seeking growing top and even bottom lines. Both are currently shrinking, at least for the First Six Months of the year. Venturebacked company. This is a this company was taken private back in 2016. Its it was founded in 1990. Its not growing. So, its not holistically indicative of what we tend to see with venturebacked companies, as we did during the last peak in 2021. But that said, it definitely is something bankers, investors, startups and other companies are looking at in terms of whether or not to start that process and really open that ipo window in earnest. Yeah. Dee, it seems like as often as the case, when the cycle cranks up again, youre going to get those companies that, you know, have a certain level of maturity, feel like its time in their life cycle to get public. Were going to get instacart. If you were looking for the longshot, maybe they have the technology that can catch lightning in a bottle, theres a couple hundred ipos sitting on the nasdaq that have been wallowing for a while that you might be able to shop among. We talked about this yesterday. The idea of a blockbuster ipo and retail investors, its like an arm, 99 of all smartphones. Retail investors want a piece of it, but history has shown getting in on that first day, especially that first day pop hasnt been a particularly good investment. The last ten that weve seen over the last four years or so have underperformed the s p from that peak and are still in the red. Its worth remembering for an arm. Leslie set that up really well. This is a more mature business. In that sense, revenue is shrinking and so is its profitability for the trailing 12 months. When you look at that valuation, it does require a leap of faith to buy it at this level. Its trailing 12month pricetoearnings ratio paints it as an ipo play. It puts it at almost an nvidia valuation. Certainly well above a qualcomm or the Semiconductor Industry as a whole. Thats sort of what the ipo is. Its a little leap of faith. Youre getting in at the start of trade so you can embark on the upside. When Companies Stay private for so long, the question should be asked, are its best growth days behind it . Obviously, arms got that core of predictability and then you have a lot of argument about the Growth Prospects outside of what they already have in hand. Thank you very much. Well continue to watch as we click towards the open. Still to come, oakmark on why he says health care looks attractive for the first time in a while. Hell join us to tell us a few of the names hes been buying. A lot me oron arm as we count down to the opening trade at the nasdaq with the stock indicated to open at 58 right now. Stay with us. Every day, businesses everywhere are asking is it possible . With comcast business. It is. Is it possible to use predictive monitoring to address operations issues . We can help with that. Can we provide health care virtually anywhere . We can help with that, too. Is it possible to survey foot traffic across all of our locations . Yeah absolutely. With the advanced connectivity and intelligence of global secure networking from comcast business. Its not just possible. Its happening. Heres why you should switch fo to duckduckgo on all your devie duckduckgo comes with a built n engine like google, but its pi and doesnt spy on your searchs and duckduckgo lets you browse like chrome, but it blocks cooi and creepy ads that follow youa from google and other companie. And theres no catch, its fre. We make money from ads, but they dont follow you aroud join the millions of people taking back their privacy by downloading duckduckgo on all your devices today. Welcome back. Our next guests fund has nearly doubled the s p year to date but he is in focus on the magnificent seven heading into the fourth quarter. The fund is leaning further into value names including energy and health care. Joining us oakmark portfolio manager. Tony, its good to see you here. If in general your orientation is to look stock by stock for stuff that hasnt necessarily kept up with the market and looks relatively inexpensive, theres probably plenty to choose from in this market thats been narrowly led. Where is that taking you . Well, thanks for having me. Youre absolutely right. The market has become incredibly narrow. While the s p looks rather expensive a little over 20 times earnings, underneath the covers theres a lot of value to be had. One of the things we look at is just valuation dispersions in general. If they take the top in the s p and compare them to the bottom decile, how much do you pay for the highest price paid companies than the lowest, historically its been a four times premium for the highest pe companies. Today its over seven. Which is back to where it was in 2021. That means theres a lot on sale out there and were trying to do our best to take advantage of it at oakmark. How do you get around the possibility that what the market is doing is simply, i guess, giving too generous valuation to those upper end preferred names and, therefore, the premium is high but it doesnt necessarily mean that the cheaper stocks are cheap on an absolute basis. Youre absolutely right. At oakmark we take an intrinsic approach to valuation which means growth is a component of value. Its not exclusionary from our universe. So, for instance, we own google. Google on a just straight pe basis looks trades right around in line with the market. Doesnt look expensive, but then when you peel back the onion and back out the cash, like cloud and other bets, it ends up your paying a pretty low multiple for search. So some of these Big Companies that have led the market this year, continue to look undervalued to us. As a broad, broad strokes, the more traditional value names are where weve been more actively buying yeartodate. Tony, hope you dont mind, one more on alphabet. He can asked bill about this all summer long, especially when microsoft appeared to be needling on a. I. , it looks like a great call to stick with it. I wonder how you think about that and the degree to which theyre being challenged in court, especially this week. Yeah, im not up to speed on whats exactly going on in court on the antitrust suit. So, i cant really comment on that. You know, microsoft and google both have great a. I. Capabilities. What we know today is its all very early. Things are happening very quickly. Its unpredictable. But we love we get to pay this price for a company like google that has a leadership position in a. I. We just dont feel like were paying for it here. We did mention, tony, you were finding some things that look pretty ripe in health care. Where particularly in that very Diverse Group . Youre right, it is a Diverse Group. You have drug stocks trading here that are alltime low relative to the s p over the last ten years. Same for biotechnology companies. Were seeing more new idea flow. Thats why i mentioned that. Ill give you an example. Thats iquvia holdings. A Contract Research organization or cro. Theyre one of the largest in that. What those companies do is help the Drug Companies throughout the trial process. And manage those trials. And they have a unique advantage in that they own the traditional ims business, which is the prescription data business. And that helps them move Pharma Companies through the trials quicker and more precisely target trial candidates for drugs. And that has led to market share gains over time. So today were paying about a market multiple for a company that grows high Single Digits with virtually infinite returns on invested capital because there isnt much capital in this business. A ceo that owns 250 million in stock and is just a phenomenal manager who truly thinks like an owner. Interesting. We also did nod to your energy exposure. So, youve owned some for a while now. Its clearly a leadership part of the market. Whats the premise there in terms of whether you need the Commodity Prices to keep going up or what parts of energy do you continue to like . Yeah, great question. As far as needing the energy price to go up, we underwrite at 70 a barrel price. The reason we do that, thats longterm price. The reason we do that is because thats where it appears to us that the marginal cost of a barrel is. Thats where capital comes in and out of the industry. That seems for a longterm minded shareholder like oakmark, thats the price we use to price the energy companies. What we see at that price and even more so today is predigous cash flow. Conocophillips, we look at them at this price, youll get your investment back over ten years. In other words, theyll produce the market cap in ten years at this price at a minimum. Meanwhile, growing production in the l