Strong estimates of demand for Arm Holdings’ ability to develop chips with artificial intelligence features drove the company’s shares higher by more than 32% on Thursday, putting it on course for its biggest day since its September market debut.
The British chip designer’s market capitalization, which was already over $100 billion, was expected to rise by over $25 billion as a result of the stock market spike to $101.92.
“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,” stated Susannah Streeter, head of money and markets at Hargreaves Lansdown.
In the chip industry, Arm is a major player since it sells the designs and other intellectual property needed to make the processing chips that drive the majority of smartphones worldwide, including those made by Apple (AAPL.O), opens new tab.
It gets money by licensing its technology to other businesses and charging royalties on chips that are shipped with it.
According to executives, Arm-based central processors are becoming more and more popular as a complement to Nvidia’s (NVDA.O) flagship GPUs. The company also unveiled new tab chips for AI applications in data centers and announced plans to release new laptops and smartphones with chatbots and other AI features.
“Arm is riding on the coattails of demand for Nvidia’s technology, particularly its datacentre systems,” Streeter stated.
Arm’s adjusted profit and sales expectations for the fourth quarter, with midpoints of $875 million and 30 cents per share, respectively, exceeded LSEG estimates.
Arm was able to expand quickly without requiring a large amount of capital due to its business strategy of developing and licensing semiconductor designs rather than producing chips, according to 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 stated.
While investors favor Nvidia’s stock at 32.66, SoftBank Group (9984.T) opens new tab-controlled Arm trades at 56.46 times its 12-month forward earnings forecasts, while Advanced Micro Devices (AMD.O) opens new tab at 43.61.
China’s rise in data centers, the automotive industry, and the rebounding smartphone market helped the country account for nearly 25% of total revenues in the third quarter.
