February 23, 2024

How investors can take advantage of Arm’s ‘win’

Shares of Arm Holdings (ARM) are jumping to all-time highs, as the company posted its fourth-quarter earnings that beat Wall Street expectations on both the bottom and top lines, with solid revenue growth of 14% to $824 million. The company also released its forecast for its first quarter looking for a revenue growth of 38% at the midpoints of its range.

Moor Insights & Strategy Founder, CEO & Chief Analyst Patrick Moorhead joins Yahoo Finance to discuss the explosive gains from Arm, how and why they might continue, and other ways investors may try to take advantage of this AI boom.

Moorhead offers some insight to where investors should start looking for the next big play: “For every Arm win, you have a customer that’s winning. Who is Arm’s largest customer? It’s Qualcomm (QCOM), from a licensing standpoint. Others ones are folks like like Amazon Web Services (AMZN), folks like media tech. People who are benefiting from that, so that’s the first place that I would look which are, what are some of the companies that are benefiting that may be potentially overlooked out there? I think that’s the first place I would start. “

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Nicholas Jacobino

Video Transcript

Shares of Arm Holdings, they are soaring and to a record. After exceeding analyst estimates, chip designer also delivering an upbeat outlook thanks to AI. Company signaling growth will be driven by the need for more energy efficient compute and AI capabilities.

And joining us now is Patrick Moorhead, Moor Insights and Strategy founder, CEO, and chief analyst. Patrick, it is always great to see you. And let’s just dig right in here. So Arm reports, Patrick, investors clearly like what they see. You’ve had time to kind of look over the report. I want to get your take on the results. And, also, Patrick, maybe just help us explain the exuberance we’re seeing today.

PATRICK MOORHEAD: Yeah, thanks, Josh. So it doesn’t get much better than this, right? They had a beat and the beat for the quarter. And next quarter, they raised. And they raised annual guidance.

And I look back at when I was commentating on this right before they went public talking about their growth opportunities. And I feel like what we’re seeing now is some of that realization setting in. So this combination and direct connection between what the company says and what the company is doing.

And it makes perfect sense to me, right? You’ve got the overall market growing driven by AI. They have market share gains in both infrastructure with the likes of Amazon Web Services, with Azure, with their new cobalt processor, and also in cars.

And then inside the markets that they’re in, like smartphones, they’re increasing content there. They’re expanding their footprint in PCs. And then finally, they’re adding more of these white glove services so that their end customers don’t have to do all of the heavy lifting to build their chips. So what we see here is exactly the result of that.

Patrick, all of that sounds great. But the stock is up 49% today. And we’re not talking some penny stock. I mean, this is a more than $100 billion company with the gains that we’re seeing today. Like, what– I mean, again, what you said was good. But what accounts for the extremity of that move that we’re seeing?

PATRICK MOORHEAD: So I’ll say that this is rich, OK? And when I look at– particularly when I do it on a comparison basis to, let’s say, an Intel or a Qualcomm or even an NVIDIA, right? And I think what investors are expecting is that Arm is going to get into some areas that it wasn’t in before, that it will likely run the table on infrastructure, right, which wouldn’t be good for AMD and Intel, but that it could be very, very big in PCs that would be very beneficial to companies like Qualcomm out there.

So yeah, I think this reaction, they’re betting on a lot and a lot into the future and maybe even things that aren’t on Arm’s road map yet.

And, Patrick, for investors who are listening right now and they’re looking for smart ways to play AI– and we’ve talked about this with you–


–on the show before, you know, Microsoft, NVIDIA– would you Patrick, as somebody who knows this company backwards and forwards, would you also consider Arm to be a smart long-term play on that broad, secular AI theme?

PATRICK MOORHEAD: Yeah, I think Arm is an AI play. And quite frankly– and not too many people talk about this. But those in technology get it– most AI is actually done on the CPU, OK? And it’s– that’s contrary to popular belief. But it’s just a fact.

Now, the industrial strength training of these models is done on GPUs, which benefits NVIDIA and folks like AMD and, in the future, Intel. And then– but most of the inference, which is running those programs, is still done on CPUs. And I always like to say, until NVIDIA and AMD find a way to boot a GPU, you’re always going to need a CPU along with it.

And so, Patrick, speaking of inference, what does this imply then about the broader chip universe? There’s been like this desperation on the part of investors to find the next NVIDIA. And maybe that also accounts for some of what we’re seeing today. Where else then do people need to be looking, particularly if, as you say, there is a big opportunity in CPUs as well?

PATRICK MOORHEAD: Yeah, I think we look– I mean, we can just take what Arm just did. And for every Arm win, you have a customer that’s winning. And who is Arm’s largest customer? It’s Qualcomm from a licensing standpoint. And the other ones are folks like Amazon Web Services and folks like MediaTek, people who are benefiting from that.

So that’s the first place that I would look which are what are some of the companies that are benefiting that may be potentially overlooked out there. I think that’s the first place I would start.

Patrick, thank you so much. Always good to catch up with you, especially on a day like this and a move like this. Thanks a lot.


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