In recent years, the technology industry has been buzzing with excitement over the development of artificial intelligence (AI). One chip company that has caught the attention of investors is ARM Holdings, a British chip firm that has experienced significant growth in just six months.
Last Thursday, ARM Holdings jumped about 50% in one day and completed a jump of 125% since it was issued less than six months ago. The reason for this rapid increase was due to encouraging reports and good forecasts for the future, thanks to strong demand from the field of AI. So, is ARM Holdings the new hot stock on Wall Street? Or were investors blinded by the excitement surrounding AI and the increase was short-lived?
In order to understand why ARM Holdings has seen such remarkable growth, it’s important to first understand what it does. In the chip world, there are two architectures: Intel’s and ARM’s. Arm is used as a basis for almost all other chips, including those used in cellular devices, vehicles, IoT devices, data centers and more. Companies like Amazon, Google, Meta, Microsoft and even Nvidia make use of Arm’s chip architecture. In fact, it controls over 99% of the market in cellular devices alone.
Despite an attempt by Nvidia to purchase ARM Holdings for $40 billion in 2020, British and American regulators objected and the deal fell through last year. However today, SoftBank – which owns about 90% of ARM Holdings – benefits from its ownership immensely as its holding is worth over $100 billion today.
In their latest financial report released last week, ARM Holdings significantly exceeded analysts’ forecasts with an adjusted profit of 29 cents per share in Q4 compared to expectations of only 25 cents per share and revenue of $824 million compared to predictions of $760 million. For next year they expect revenue between $3.16-3.2 billion while analysts expect them to bring in $3.05 billion only.
The company also announced that they have high hopes for their new V9 chip design architecture which could contribute twice as much in royalties compared to their previous generation chip design architecture. In fact about 15% of their customers already used V9 last quarter which is an increase compared to 10% in Q3