(Bloomberg) -- Hours before Arm Ltd.’s initial public offering filing is expected to land, investors are scrutinizing a handful of reported financial metrics for clues on whether the lofty valuation the company is said to be seeking for its shares makes sense.

Bloomberg has previously reported that Arm was aiming for valuations between $60 billion and $70 billion, as the chip designer tries to cash in on investors’ frenzy for stocks that can benefit from the rise in artificial intelligence. SoftBank Group Corp., which owns Arm, bought a 25% stake in the company from the Vision Fund at a $64 billion valuation. 

Those kinds of levels are high compared with the valuations that investors have awarded smaller Arm competitors like Synopsys Inc. and Cadence Design Systems Inc. Using the price-to-sales ratios of those public companies for Arm would imply a value of between about $32 billion and $43 billion for the chip designer. 

That’s based on the $2.68 billlion of revenue from Arm’s latest fiscal year. A representative for Arm declined to comment. 

That range jibes with what analysts at Bernstein Research suggested in a July 23 note, when they said the company should be worth around $40 billion. They added that there “could be upside” to that valuation on “the potential for more significant growth based on future AI applications and further profitability improvements,” as more information will be made public during the IPO process. Arm is the clear market leader in the market for semiconductor design, Bernstein said.

Figuring out a valuation for any company ahead of an IPO is difficult, but the frenzy surrounding all things AI makes Arm more complicated. Further muddling the calculus is the company’s unusual business model — it generates cash by charging chipmakers royalties for its semiconductor designs — making it tough to directly compare it to other firms.   

Chipmakers Nvidia Corp. and Advanced Micro Devices Inc., for example, have some of the highest valuations in the Nasdaq 100 index, based on share price relative to past earnings.  

But those ratios plunge when comparing share price to expected earnings for the next year. If using an average blended forward price-to-earnings ratio across Nvidia, AMD, Synopsys and Cadence, then Arm would need to generate $1.1 billion of income to justify a $40 billion valuation or around $1.7 billion for a $64 billion value.

Read more: How Arm Aims to Ride AI Wave to Year’s Biggest IPO: QuickTake

The difficulty in forecasting revenue makes valuing the company hard. The chip designer is navigating an industry that is still emerging from a sales slump triggered by a buildup of excess inventory, especially in the smartphone market — a central focus for Arm. 

But the AI boom has catapulted Nvidia to a 220% surge this year — adding about $800 billion in value — as giddy investors flocked to companies with exposure to the still nascent industry. That could drive investors to pay up for Arm when it likely goes public next month, with the company pitching itself as a major driver of the future of AI.

Other metrics that Wall Street will be modeling may include the market value of Arm compared to the cash flow it generates, in particular, the cash flow from its operations after necessary capital expenditure. Looking at industry peers, chipmakers Nvidia and AMD are among the market’s stocks that trade at the loftiest levels using the metric.

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