Arm Holdings shares experienced a remarkable surge of nearly 60 percent on Thursday, marking their most substantial single-day gain since their high-profile market debut in September. This surge was fueled by robust forecasts predicting increased demand for the company’s chip design technology tailored for artificial intelligence applications.
The surge in stock value was poised to augment Arm’s market capitalization by approximately $47 billion, reaching $122.67 billion and surpassing the $100 billion milestone. It’s worth noting that only 9.5 percent of Arm’s total outstanding shares are publicly traded, rendering the stock susceptible to significant fluctuations.
Analyst Ben Bajarin from Creative Strategies noted, “The market is gaining a better understanding of Arm’s business model and its alignment with the prevailing trends in chip design over the coming years.”
The expiration of the IPO lockup period on March 12 is anticipated to increase the supply of Arm shares, potentially impacting market dynamics.
Arm’s fourth-quarter sales and adjusted profit forecasts, with midpoints of $875 million and 30 cents per share respectively, surpassed expectations set by analysts.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, remarked, “Arm’s performance has surpassed forecasts for 2024 revenue expectations, with investors also applauding the company’s effective cost control measures amid robust demand for chips, particularly in the cloud server market.”
Arm CEO Rene Haas conveyed Japan’s SoftBank Group’s continued optimism about the company’s future prospects in an interview with CNBC.
Arm occupies a pivotal role in the chipmaking landscape by providing blueprints and intellectual property for computing chips powering a majority of the world’s mobile phones, including those manufactured by Apple.
The company generates revenue through licensing agreements and royalties from chips integrated with its technology.
Investor enthusiasm was also fueled by Arm’s successful diversification efforts, with smartphones now constituting 35 percent of overall units shipped, compared to 60-70 percent in 2016.
Russ Mould, investment director at AJ Bell, emphasized, “Arm’s asset-light model, centered on creating and licensing semiconductor designs rather than chip manufacturing, has enabled rapid growth without substantial capital investment.”
Arm’s forward earnings estimates imply a price-to-earnings ratio of 56.46, exceeding that of industry peers such as Nvidia and Advanced Micro Devices.
China emerged as a significant contributor to Arm’s revenue in the third quarter, accounting for about 25 percent of total revenues, driven by growth in data centers, automotive, and the rebounding smartphone market.