Arm share price soars as AI boom brightens outlook
Arm's reports sales and profit that beat estimates
Bengaluru — Arm Holdings shares surged nearly 63% on Thursday, on track for their best day since market debut in September, powered by strong forecasts on demand for its technology to design chips for artificial intelligence features.
The stock surge was set to add roughly $50bn to the British chip designer’s market value at $125.27, taking it past the $100bn level. Only 9.5% of Arm’s outstanding shares are publicly traded, making it susceptible to sharp moves.
“Arm blew forecasts out of the water for 2024 in terms of revenue expectations and investors have also cheered the company's strong cost control measures as it surfs a wave of demand for chips for the cloud server market in particular,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Arm plays a key role in the chipmaking space as it sells blueprints and other intellectual property to create computing chips that power most of the world’s mobile phones, including Apple.
It earns revenue from licences to other companies and on royalty rates from chips shipped with its technology.
Executives said on Wednesday customers were flocking to Arm-based central processors to complement Nvidia’s chips for AI work in data centres, and it was working on new laptops and smartphones that can handle chatbots and other AI features.
“Arm is riding on the coattails of demand for Nvidia’s technology, particularly its data centre systems,” Streeter said.
The midpoints of Arm’s fourth-quarter sales and adjusted profit forecasts range of $875m and 30c per share, respectively, beat LSEG estimates.
Its model of creating and licensing semiconductor designs rather than manufacturing chips meant Arm was able to grow fast without employing a lot of capital, said Russ Mould, investment director at AJ Bell.
“These attributes still exist and are now being supercharged by AI ... that is reflected in the substantially higher royalty and licensing revenue being reported by the company,” Mould added.
SoftBank Group-controlled Arm trades at 56.46 times its 12-month forward earnings estimates, versus investor darling Nvidia’s 32.66 and Advanced Micro Devices’ 43.61.
China contributed to about 25% of total revenues in the third quarter, helped by growth in data centres, automotive and the recovering the smartphone market.
“The December quarter upside was more likely driven by a surge in royalty revenue from China, as well as a related-party transaction with a company that Arm invested in (we think it is Ampere),” Needham analysts said in a note.
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