(CTN News) – On Thursday, Arm Holdings shares surged by more than 32%, on track for their best day since their market debut in September, driven by strong forecasts for its technology in designing chips for artificial intelligence.
At $101.92, the stock surge was expected to add over $25 billion to the British chip designer’s market value, taking it past the $100 billion mark.
According to Susannah Streeter, head of money and markets at Hargreaves Lansdown, Arm blew revenue expectations out of the water for 2024 and investors are also cheering its strong cost control measures as it surfs a wave of demand for chips for cloud servers in particular.
It sells blueprints and other intellectual property that enable it to create the chips that power most of the world’s mobile phones, including Apple (AAPL.O).
In addition to licensing its technology to other companies, it earns revenue by charging royalty rates on chips that incorporate the technology.
The company’s executives said on Wednesday that customers are flocking to Arm-based central processors in order to complement Nvidia’s (NVDA.O). It is also launching new tab chips to perform AI tasks in data centers, as well as developing laptops and smartphones that can run chatbots and other AI functions.
According to Streeter, Arm is taking advantage of the demand for Nvidia’s technology, particularly its datacenter systems.
The midpoints of Arm’s forecasts for fourth-quarter sales and adjusted profit were $875 million and 30 cents per share, respectively, which exceeded LSEG’s estimates.
AJ Bell’s investment director, Russ Mould, said Arm’s model of creating and licensing semiconductor designs rather than manufacturing chips allowed it to grow quickly without using a great deal of capital.
As a result of AI, these attributes exist and are now being supercharged, as demonstrated by the substantial increase in royalty and licensing revenues reported by the company,” Mould said.
Against Nvidia’s (NVDA.O) 32.66 and Advanced Micro Devices’ (AMD.O), opens new tab 43.61, SoftBank Group (9984.T)-controlled Arm trades at 56.46 times its 12-month forward earnings estimates.
It is estimated that China contributed approximately 25% of total revenue in the third quarter, supported by growth in the data center and automotive industries as well as the recovery of the smartphone market.