Arm’s stock witnessed an impressive surge of over 50% on Thursday, propelled by robust AI demand, leading to higher royalty and licensing revenue. CEO Rene Haas highlighted the substantial opportunity arising from the growing demand for innovative artificial intelligence applications deployed by tech firms. Emphasizing Arm’s foundational architecture behind chips, the company raised its earnings outlook, projecting a revolutionary shift in demand for AI computing power to fuel its next growth phase.
In the three months ending December, Arm reported revenue of $824 million, a notable 14% year-on-year increase, surpassing consensus estimates of $763 million, according to S&P Capital IQ. The company also revised its full-year revenue guidance upwards, now ranging from $3.15 billion to $3.2 billion. Notably, smartphone royalty revenue rebounded due to an uptick in device sales. Adjusted earnings per share reached $0.29, prompting an upward revision of the full-year guidance from $1.00-$1.10 to $1.20-$1.24.
Arm’s positive trajectory is evident in its second quarterly earnings report since going public in September. The initial report left Wall Street underwhelmed due to over $500 million in remuneration costs post-listing in New York. SoftBank, with over 90% ownership, acquired Arm for $32 billion in 2016, and despite the UK’s push for a London listing, SoftBank opted for New York.
Arm shares traded at nearly $120 on Thursday morning in New York, doubling the $51 listing price. Haas, in an earnings call, emphasized Arm as the most fundamental and pervasive compute platform in digital design history. The demand for AI applications is driving diverse product needs, with royalties from the latest Armv9 chip design architecture contributing 15% to overall royalty revenues, up from 10% in the previous quarter.
Arm’s V9 architecture is crucial in processor chips for data centers hosting large language models like Nvidia’s Grace Hopper, Microsoft’s Cobalt, and Amazon’s Graviton. The V9 designs also feature in premium smartphones from Apple, Samsung, and Google. The company’s growth extended to China, with Arm China now constituting 25% of total revenue. Licensing revenue increased, fueled by demand for the computing platform Arm Total Access.
In contrast to the more conservative outlook of several chip companies, including Intel, AMD, and Texas Instruments, Arm’s optimistic results align with Qualcomm’s recent success, attributing it to the rising demand for AI-focused chips. The buoyant performance positions Arm as a key player in the evolving landscape of AI-driven technology.