On Wall Street, a British chip company has caught the attention of all investors: ARM Holdings. In just one day, its stock price jumped about 50%, and since its initial offering less than six months ago, it has increased by 125% to a value of approximately $118 billion. The recent surge in stock value was due to positive reports and strong forecasts for the future thanks to high demand from the field of artificial intelligence (AI). So is ARM Holdings the new hot stock on Wall Street? Or were investors blinded by AI and the increase was merely speculative?
Let’s first understand what ARM Holdings does. According to Sergey Vaschunok, a senior analyst at Oppenheimer investment house, “In the chip world there are two architectures: Intel’s and Arm’s. Arm’s architecture is used as the basis for everything else, with almost all companies paying royalties to it.” Softbank, a Japanese investment fund that owns about 90% of ARM Holdings shares, benefits greatly from this arrangement.
ARM chips are used in various fields such as cellular (where it controls over 99% of the market), vehicles (41% market share), IOT (Internet of Things) devices like smart homes (65% market share), and data centers (10%) that power AI developments. Many major tech companies such as Amazon, Google, Meta, Microsoft – including Nvidia itself – use ARM’s chip architecture in their products.
In fact, in 2020 Nvidia attempted to purchase ARM from Softbank for $40 billion but was blocked by British and American regulators. However, today Softbank can boast that its holding is worth over $100 billion despite not selling out completely yet.
In terms of performance last week, ARM Holdings reported higher-than-expected results with adjusted profits of $0.29 per share compared to analyst forecasts ($0.25) and revenues of $824 million compared to expectations ($760 million). For next year’s revenue projections, ARMs expects between $3.16 billion ($3.2 billion) while analysts expect it will be around $3.05 billion – a significant difference indeed!
What sets ARM apart is their optimism about their new V9 chip design architecture which they predict could generate twice as much in royalties compared to previous generations according to their assessment. In Q4 last year about 15% of customers already utilized V9 technology; an increase from Q3 when only 10% used it . This suggests that demand for AI technology is growing rapidly within this sector too which might explain some part of this sudden spike upwards on Wall Street recently even if there isn’t enough evidence yet whether this will continue or not moving forward .
However if you look at the recent sharp jump in ARMs share price over two days which represents more than 50%, one may wonder if it reflects genuine excitement or pessimism among investors regarding future prospects? After all many experts have downgraded ARMs position based on these sudden gains; from 19 analysts recommending buying back in October now only 16 do so , suggesting perhaps some level of doubt creeping into investor sentiment after these wild swings . But then again we also need to consider other factors like Nvidia or AMD being cheaper alternatives if you want to play actively in AI race . Therefore , before investing heavily here one should keep an eye on how quickly these gains stabilize , what impact new competitors will have on ARMs position , especially those emerging out from China who are rapidly gaining ground