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Investing.com — Arm — A British chip design company majority-owned by SoftBank saw its market valuation more than double in days after warning that increased demand from artificial intelligence had improved its profits. .
arm Holdings (NASDAQ:)'s market capitalization has jumped from about $70 billion to $153.2 billion since late Thursday, making the chip designer one of the world's most valuable chip companies just months after going public in November. Ranked.
The rally was triggered by better-than-expected profits in the December quarter, and Arm also significantly raised its outlook on expectations for increased demand from the AI boom.
Chip designers earn royalties by licensing their designs for use by the world's largest chip makers. His NVIDIA Corporation (NASDAQ:), which is at the center of the recent AI-driven boom, is one of Arm's biggest customers.
Arm's rapid growth has helped SoftBank Group (TYO:) earn huge profits of over $100 billion. SoftBank owns 90% of the chip design company, valuing the company's stock at about $130 billion, more than SoftBank's own market capitalization of about $85 billion.
Shares in the Japanese tech investment giant have also risen more than 20% since Thursday, hitting their highest since May 2021.
Aftermarket trading causes a sharp drop in the arm, resulting in short-term losses?
However, Arm fell 3% in aftermarket trading on Monday and is now seen as vulnerable to profit-taking following that impressive rally.
According to data from Investing.com, the stock trades at an impressive 135.9 times forward earnings, a trend that typically portends short-term losses. NVIDIA, whose market capitalization skyrocketed in early 2023, saw some profit-taking as its price-to-earnings ratio soared.
SoftBank may also sell some of its Arm shares when the post-IPO lock-up period ends in early March.
Still, Arm's long-term prospects looked bright, especially as AI continues to grow in popularity. Nvidia still has a P/E ratio of 96.5, and with its market cap expected to triple in 2023, the chipmaker recently overtook Amazon.com (NASDAQ:) to become Wall Street's fourth-largest company.
“For most observers, a sudden valuation increase is not consistent with the income statement or future outlook,” Ryan Shrout, founder and principal analyst at Shrout Research, said in a recent blog post. .
“The key thing for me is the royalty revenue stream and its growth over the next 1-3 years…More of the Arm product configuration is moving to the more advanced, more capable, and more profitable Armv9 architecture. As the economy grows, companies are expected to grow at a higher rate than their individual sectors.”
Arm's December quarter results showed the company is diversifying away from its reliance on smartphone chips and into servers, cars and portable devices.
The company also noted that increased demand for AI development could lead to higher demand for high-performance chips. Shrout noted that Arm would likely benefit if more companies develop their own silicon to compete with processors from NVIDIA and Advanced Micro Devices Inc (NASDAQ:).
