Chip designer Arm Holdings (ARM) beat analyst expectations for its fiscal third quarter and provided a bullish outlook for the current period. Arm stock rocketed Thursday on the news.
The Cambridge, U.K.-based company late Wednesday said it earned an adjusted 29 cents a share on sales of $824 million in the quarter ended Dec. 31. Analysts polled by FactSet had expected earnings of 25 cents a share on sales of $762 million. On a year-over-year basis, Arm earnings rose 32% while sales increased 14%.
For the current quarter, Arm expects to earn an adjusted 33 cents a share on sales of $875 million, based on the midpoint of its guidance. Analysts were modeling earnings of 20 cents a share on sales of $779 million.
“More customers moving to higher-value Arm v9 technology combined with market share gains in cloud server and automotive resulted in strong royalty growth,” Chief Executive Rene Haas said in a letter to shareholders.
He added, “The AI wave drove licensing growth as these new devices require Arm’s performant and power-efficient compute platform.”
Arm Stock Jumps After Report
In afternoon trades on the stock market today, Arm stock shot up 56.7% to 120.68. Earlier in the session, it hit a record high of 126.58.
Arm’s chip designs are used by every major semiconductor maker including Apple (AAPL), Qualcomm (QCOM), Nvidia (NVDA) and many more. Arm provides basic designs for the semiconductors produced by its clients. Chipmakers customize and build on those blueprints.
Arm is focused on four business segments: client, automotive, data center and Internet of Things. Currently, its biggest end markets are mobile devices and consumer electronics.
In its fiscal third quarter, royalties accounted for 57% of Arm’s total sales while licensing revenue made up the other 43%. Royalties enable Arm to get a payment per chip sold. Licensing involves giving customers access to its portfolio of intellectual property for developing Arm-based processors.
Arm’s royalty rates are rising as more customers adopt its Arm v9 technology. The royalty rates for Arm v9 products are typically at least double the royalty rates for equivalent Arm v8 products.
Chips based on Arm v9 technology now contribute around 15% of Arm’s royalty revenue, up from around 10% in the September quarter.
Arm Stock Is On Three IBD Lists
Meanwhile, the broader semiconductor market is showing signs of recovery, particularly in smartphones, which returned to strong growth in Q3, Arm said.
At least 12 Wall Street firms raised their price targets on Arm stock after the earnings report.
Loop Capital Markets analyst Ananda Baruah reiterated his buy rating on Arm stock and upped his price target to 120 from 69.
“Arm has become the latest in a string of very key Gen AI (generative artificial intelligence) technology infrastructure names to generate material traction and to see significant and accelerating Gen AI technology customer interest,” he said in a client note. “Fortuitously, Arm participates ultimately in all areas of build; training, inference and edge devices.”
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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