How to trade on Alphawave's IPO

Alphawave, founded in 2017, has grown to be one of the leaders of its sector, helping tier-one companies, including large semiconductor suppliers across North America, Asia-Pacific countries, Europe and the UK, meet their need for speed.

Many observers expected Alphawave to list on either the Toronto Stock Exchange or New York’s Nasdaq stock market, given its Canadian heritage and because the US is a traditional ‘float’ route for technology firms. The disastrous IPO of delivery firm Deliveroo in London earlier this year, which saw its shares slump by around 25% on debut, was also tipped to dampen further tech demand in the capital.

However, Alphawave, said it is “proud” to go public in the UK “where the Silicon IP business model was invented”. It hailed the experienced semiconductor community and local investors who understand the industry.

It also plans to open its new R&D headquarters in Cambridge, UK, which is known as Silicon Fen, for its expertise in the technology sector.

Alphawave’s IPO took place on 13 May 2021 and the company's LSE ticker was revealed as 'AWE'. Trade on our newly listed Alphawave share price >

Alphawave has set a price range for its shares between 375p and 430p, where the company was looking to raise around £810m in new and existing stock.

Upon debut, Alphawave's share price plunged by as much as 22% to 310p.

Alphawave was expected to be valued at £3.2bn ($4.5bn) when it floated on the London Stock Exchange. However, as its share price dropped by 22% on its first trading day, this reduced its overall market cap to around £2.45bn.

This can be compared with listed silicon IP group Synopsys [SNPS], which has a valuation of around ten times higher. However, it is to be noted that past performance is not necessarily indicative of future results, as we are comparing financial figures between companies.

Synopsys has a price-to-earnings ratio of 54.35, which suggests that investors believe future growth will be strong. This is typical for technology firms as investors tend to have an optimistic view of future demand. Expect Alphawave to have a similar ratio when it floats, given that its leading semiconductor customers are powering high-growth technology sectors, such as 5G and autonomous vehicles.

Alphawave has been profitable since its first full year of operation in 2018. Its operating profit reached $17.5m in the year ended 31 December 2020, achieving a compound annual growth rate of 207% since the year to 31 May 2018. It generated revenues, from licensing and royalty fees, of $32.8m, up 161% since 2018. It estimates that its total addressable market opportunity will grow from $500m to $1.5bn in 2025. The key to Alphawave’s rapid growth is that it is solely focused on high-speed connectivity IP solutions. It believes it is the only non-US firm to have licensed this technology.

Semiconductors are everywhere — from our mobile phones to our cars and fridges — and will play a crucial role in the evolution of 5G technology, electric and autonomous vehicles, cloud storage and ‘the Internet of Things’, where many different electrical devices are connected. To respond to an ever-expanding data demand from consumers and businesses, there is a critical need for faster and more reliable connectivity.

Alphawave believes it can develop this technology more cost effectively than internal design teams in large semiconductor firms. It claims it is the only pure high-speed connectivity IP provider focused on transmission speeds of up to 112 gigabits per second. It is also developing 224 gigabits per second solutions.

Alphawave is looking to expand into new technology and key regions such as Asia. It also aims to grow recurring revenues via a customer subscription model. The license and royalty fees it receives for every chip sold based on its designs are already very profitable and cash generative.

According to AJ Bell, despite the coronavirus pandemic, global semiconductor sales rose 5% in 2020 to a high of $430bn. The investment platform expects that further economic growth, increased silicon content per unit in cars, mobile phones and data servers, could fuel 8% higher global sales in 2021. The semiconductor IP market is expected to grow at a compound annual growth rate of around 5.5% by 2025, Research and Markets suggests.

There is currently a global supply shortage of semiconductors because of rising demand. Car manufacturers are ramping up electric vehicle (EV) production and more people are at home playing on games consoles and mobile phones. The supply crunch could lead to higher consumer prices, potentially reducing high-tech purchases and delaying the building of EVs and new mobile phones. This could impact Alphawave’s revenues.

Another clear risk is the potential loss of key customers. Rival semiconductor IP firm Imagination Technologies supplied its IP designs to Apple until 2017, when the iPhone tech giant scrapped the deal to focus on in-house developments. This led to Imagination’s share price plunging by 70%.

In addition, IP customers can switch at any time if they want newer designs, or more design control. This means that Alphawave must be careful in developing and keeping a broad range of customers and to keep investing in R&D such as the new Cambridge site.

Keep up to date with market developments in the news and analysis section of the platform.

The two main semiconductor IP rivals are Arm Holdings and Imagination Technologies. Cambridge-based Arm was London-listed until it was bought for £23bn by Japan’s SoftBank [SFTBY] in 2016. It is now the subject of a potential $40bn takeover from US semiconductor giant Nvidia [NVDA]. This is being held up after the UK government raised national security concerns because Arm’s IP underpins crucial defence infrastructure.

Hertfordshire-based Imagination Technologies was also London-listed before being bought by Canyon Bridge in 2017. It has subsequently reached a new licensing agreement with old partner Apple.

Alphawave’s rivals have deep pockets — particularly if the Nvidia/Arm deal proceeds, which could make it harder to gain market share. But the growth of the two UK firms also shows what Alphawave’s own future could look like if it keeps innovating.