Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Shares in Arm rocketed by more than 60 per cent on Thursday after the UK chip designer reported higher revenues boosted by strong demand for artificial intelligence.
SoftBank-backed Arm, which listed on Nasdaq in September, raised its earnings outlook as it posted revenue of $824mn for the three months to the end of December, up 14 per cent year-on-year and surpassing analysts’ expectations.
The results are Arm’s second since its blockbuster IPO, which valued the company at $65bn on its first day of trading and marked the biggest US listing in almost two years.
On Thursday, Arm’s market capitalisation had almost doubled since then to about $125bn.
Chief executive Rene Haas said the company had benefited from the “profound opportunity” of surging demand for new AI applications, which he said was “driving the need for a lot of different products”.
Nvidia’s Grace Hopper, Microsoft’s Cobalt and Amazon’s Graviton, which are used to run large language models, are all based on Arm’s newest V9 chip design.
The V9 now makes up 15 per cent of the company’s overall royalty revenues, up from 10 per cent during the last quarter, and is bringing in royalties at twice the rate of the previous version, Haas said.
In recent years Arm, which sells chip design licences to manufacturers that in turn pay royalties on each unit shipped, has sought to diversify its business to reduce its dependence on the contracting smartphone market.
However the company said on Wednesday that royalty revenue from smartphones had improved thanks to a recovery in device sales. Haas said Arm’s V9 designs were “in all of the premium smartphones” from companies including Apple, Samsung and Google.
Chief financial officer Jason Child said Arm had experienced strong growth in China, with its division in the country now accounting for 25 per cent of total revenue, up from 20 per cent for the third quarter.
Haas added that licensing revenue growth had also increased, thanks in part to a rise in demand for the computing platform Arm Total Access.
The latest earnings are a sharp improvement on Arm’s first report in November, which left Wall Street underwhelmed after the company paid out more than $500mn in staff remuneration costs related to its listing.
On Wednesday the chip designer raised its full-year revenue guidance from a range of $2.96bn-$3.1bn to $3.15bn-$3.2bn.
Japan’s SoftBank sold less than 10 per cent of Arm during the IPO, holding on to most of its shares so that it would be able to borrow money against them. Analysts have said this strategy could restrict the supply over the longer term and help increase the stock’s value.
Arm shares traded at more than $120 on Thursday morning in New York, more than double the $51 price the company offered when it first listed.
Adjusted earnings per share were $0.29, and the company lifted its full-year guidance from a range of $1.00-$1.10 to $1.20-$1.24.
Arm’s upbeat results contrast with those of several other chip companies this year. Intel, AMD and Texas Instruments all offered lukewarm outlooks due to concerns about broader sluggishness in the semiconductor sector.
Qualcomm, however, also beat revenue expectations last week, attributing its strong results to demand for AI-focused chips.