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Analysts Express Concern Despite 50% Stock Jump in Arm

British chip company ARM Holdings has recently caught the attention of Wall Street after experiencing a sharp increase in its stock price. In just one day, the company’s share price jumped about 50%, and since its IPO less than six months ago, it has increased by 125% to a value of approximately 118 billion dollars. The reason for this sudden surge was due to encouraging reports and strong forecasts for the future thanks to the growing demand for artificial intelligence (AI). So is ARM the new hot stock on Wall Street, or were investors blinded by the AI hype and the increase was unsustainable?

In the world of chips, there are two architectures: Intel’s and ARM’s. While Intel is used in home computers, ARM is the basis for everything else. It holds patents on its architecture, which means that almost all companies are based on ARM and pay royalties to it. Softbank, a Japanese investment fund that owns about 90% of ARM shares, benefits greatly from this arrangement.

ARM’s chips are used in various fields such as cellular (where it controls more than 99% of the market), vehicles (41% of the market), IoT (65%), and data centers (10%). Many major technology companies make use of ARM’s chip architecture, including Amazon, Google, Meta, Microsoft – and Nvidia itself. In fact, Nvidia tried to purchase ARM from Softbank for 40 billion dollars in 2020 but was blocked by British and American regulators. Today, Softbank should be happy about the deal falling through as its holding is worth over 100 billion dollars.

In its latest financial report, ARM exceeded analysts’ forecasts significantly. It reported an adjusted profit of 29 cents per share in the last quarter compared to forecasts of 25 cents per share and revenues of $824 million compared to expectations of $760 million. For next year, the company expects revenue between $3.16-3.205 billion while analysts expect it to bring in $3.05 billion.

The success of ARM’s new V9 chip design architecture could contribute significantly to its revenue growth in the future. According to Nir Orgad, an overseas stock analyst at Bank Leumi Consulting Department, V9 may generate twice as much revenue compared to previous generations chip design architecture at Arm Ltd., with already about 15% of customers using it in Q4 compared to Q3 . However, if recent reports indicate anything

By Editor

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