On Thursday, a British chip company caught the attention of Wall Street as its stock jumped about 50% in one day, completing a 125% jump since it went public less than six months ago. The reason for the increase was encouraging reports and strong demand from the field of artificial intelligence. So, is arm the new hot stock on Wall Street? Or were investors blinded by AI and the increase was thin?
First, let’s explain what arm is. According to Sergey Vashchunok, a senior analyst at Oppenheimer, there are two architectures in the world of chips: Intel and arm. Intel’s architecture is used in home computers, while arm’s architecture is used in everything else. Arm has been around for decades and holds many patents on its architecture. It is also one of the most widely used chip architectures in the world, with companies like Softbank benefiting greatly from its use.
The chips made by arm are used in various fields such as mobile telephony (where it controls over 99% of the market), vehicles (41% of which use arm’s chips), IoT (Internet of Things such as smart homes), and data centers (where it provides computing power for artificial intelligence). Many major tech companies such as Amazon, Google, Meta, Microsoft and Nvidia use Arm’s chip architecture. In fact, Nvidia even tried to buy Arm from Softbank for $40 billion in 2020 but was stopped by British and American regulators. Today, Arm’s stock is worth more than $100 billion and its share price has increased by 50% in just two days last weekend.
In terms of performance last quarter, Arm reported an adjusted profit of 29 cents per share compared to analysts’ forecasts of 25 cents per share. Revenue also came in at $824 million compared to expectations of $760 million. Looking ahead to next year, Arm expects revenue between $3.16-3.2 billion while analysts expect it to bring in $3.05 billion. The company has high hopes for its new V9 chip design architecture which could contribute twice the royalties compared to its previous generation chip design architecture . Last quarter about 15% of customers were already using V9 up from 10% in the previous quarter . However