FILE PHOTO: A screen displays the logo of Softbank's Arm, chip design firm, during the company’s initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023. REUTERS/Brendan McDermid/File Photo
(Reuters) - Arm Holdings surged more than 25% on Thursday driven by strong forecasts as customers aim to design new chips for artificial intelligence work that could bump up royalties for the British tech firm.
The company, which sells blueprints and other intellectual property for creating computing chips that power most of the world's mobile phones including Apple, has been a key beneficiary of rising demand for AI-powered devices.
The strong showing set Arm on course to add nearly $20 billion in market value, based on its premarket share price of $96.35. It would be Arm's best day since its listing in September, if gains hold.
Arm executives said on Wednesday customers were flocking to Arm-based central processors to complement Nvidia's chips for AI work in data centers, and it was working on new laptops and smartphones that can handle chatbots and other AI features.
Its model of creating and licensing semiconductor designs rather than manufacturing chips meant Arm was able to grow fast without employing a lot of capital, Russ Mould, investment director at AJ Bell, said.
"These attributes still exist and are now being supercharged by AI ... that is reflected in the substantially higher royalty and licensing revenue being reported by the company," Mould added.
The midpoints of Arm's fourth-quarter sales and adjusted profit forecasts range of $875 million and 30 cents per share, respectively, beat LSEG estimates.
"Arm is riding on the coattails of demand for Nvidia's technology, particularly its datacentre systems," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
SoftBank Group-controlled Arm trades at 56.46 times its 12-month forward earnings estimates, versus investor darling Nvidia's 32.66 and Advanced Micro Devices' 43.61.
Only 9.5% of Arm's outstanding shares were publicly traded. Low-float stocks are susceptible to sharp moves.
(Reporting by Samrhitha Arunasalam in Bengaluru; Additional reporting by Medha Singh; Editing by Shounak Dasgupta)
