Shares of Arm are up almost 50% due to AI demand

Arm shares soared almost 50% on Thursday, after the UK chip manufacturer reported higher revenues, boosted by a strong demand for artificial Intelligence.

SoftBank-backed Arm raised its outlook for earnings after it reported revenue of $824mn in the three-month period ending December. This was up 14% year-on-year, and exceeded analysts’ expectations.

This is Arm’s second set of results since its massive IPO in which the company was valued at $65bn and the largest US listing for almost two years.

Arm’s capitalisation on the stock market had nearly doubled to $117bn by Thursday.

Rene Haas, the chief executive of the company, said that the company had benefitted from the “profound” opportunity of the surging demand for AI applications. He said this was “driving a need for many different products”.

Nvidia Grace Hopper, Microsoft Cobalt, and Amazon Graviton are all based Arm’s newest chip design, the V9. They are used for large language models.

Haas stated that the V9 is now responsible for 15 percent of the company’s total royalty revenue, up from just 10 percent during the last quarter. It also generates royalties twice as fast as the previous version.

In recent years Arm, which sells chip design licences to manufacturers that in turn pay royalties on each unit shipped, has sought to diversify its business to reduce its dependence on the contracting smartphone market.
The company stated on Wednesday, however, that the increase in smartphone sales had resulted in a higher royalty revenue. Haas claimed that Arm’s V9 design was “in all premium smartphones” by companies such as Apple, Samsung and Google.

Jason Child, the chief financial officer at Arm, said that the company had seen a strong growth in China. Its division in China now accounts for 25% of the total revenue, up by 20% from the third quarter.

Haas said that the licensing revenue had also grown, in part due to an increase in demand for Arm Total Access.

The company’s latest earnings report is a marked improvement over Arm’s November first-quarter report, which left Wall Street unimpressed after it paid out more that $500mn for staff remuneration related to its listing.

The chip designer increased its revenue guidance for the full year from $2.96bn to $3.1bn, to $3.15bn or $3.2bn.

SoftBank, a Japanese company, sold less than 10% of Arm shares during the IPO. It held on to the majority of its shares to be able borrow money. Analysts said that this strategy would help to increase the value of the stock in the long term by limiting the supply.

Arm shares surged up to 64 percent, reaching a record high price of $126.59 in New York on Thursday morning. This is more than twice the initial $51 offered by the company when it was first listed. The shares closed the session at a record high of $113.89, up 47.9 percent.

The adjusted earnings per share was $0.29 and the company raised its full-year guidance range from $1.00 to $1.10 to $1.20 – $1.24.

Arm’s results are in contrast to those of other chip makers this year. Intel, AMD and Texas Instruments have all given a lukewarm forecast due to concerns over the broader slowdown in the semiconductor industry.

Qualcomm also exceeded revenue expectations in the last week. It attributed its results to the demand for AI-focused chip.