Last Thursday, a British chip company caught the attention of all of Wall Street. A company arm holdings jumped about 50% in one day and completed a jump of 125% since it was issued less than six months ago, reaching a value of approximately $118 billion dollars. The reason for the recent increase was encouraging reports and especially good forecasts for the future due to strong demand from the field of artificial intelligence (AI). So is arm the new hot stock on Wall Street? Or were investors blinded by AI and the increase was spotty?
First, let’s understand what arm is. According to Sergey Vaschunok, senior analyst at Oppenheimer Investment House, “in the chip world there are two architectures: Intel’s and Arm’s.” The architecture registered by Arm is used as a basis for almost all companies, which pay royalties to it. Companies such as Softbank benefit greatly from this architecture. In fact, arm chips are used in fields like cellular (where it controls more than 99% of the market), vehicles (41%), IOT (65%) and data centers (10%). Most major technology companies use Arm’s chip architecture, including Amazon, Google, Meta, Microsoft – and Nvidia itself.
In 2020 Nvidia attempted to purchase Arm from Softbank for $40 billion but regulators objected and the deal fell through. Today Softbank benefits greatly from its holding in Arm which is worth over $100 billion dollars. Last week Arm reported its results and significantly exceeded analysts’ forecasts with an adjusted profit of $0.29 per share in Q3 compared to analyst predictions of $0.25 cents per share and revenues of $824 million compared to expectations of $760 million dollars. For next year, they expect revenue between $3.16-3.205 billion while analysts predict it will bring in $3.05 billion.
According to Nir Orgad, an overseas stock analyst at Bank Leumi Consulting Department, one factor contributing to this success may be their new V9 chip design architecture which could potentially contribute twice as much in royalties compared to their previous generation design architecture. In Q4 alone about 15% of customers already used V9 while that number increased from 10% in Q3 suggesting that investors are confident in this technology moving forward.
However if we look at recent developments on Wall Street regarding this company