ARM, a well-known semiconductor company, has experienced a substantial increase in its stock prices, attracting the attention of investors and industry observers. This article delves into the key factors contributing to ARM’s exceptional stock increase, underlying the primary numerical indicators that underpin its recent success in early 2024.
ARM
ARM, founded in 1990 and headquartered in Cambridge, United Kingdom, is a leading designer of advanced microprocessors and related artificial intelligence (AI) properties. The innovative design, approach and technological advantages have ranked ARM in the global semiconductor industry.
Primary products of ARM
ARM company products are used in a variety of devices, some of which are smartphones, tablets, systems and Internet of Things (IoT) devices. One of the primary products and architectures, developed by ARM corporation include Cortex-A, Cortex-R and Cortex-M series. These are various processors developed for different purposes. The A models are primarily designed for high-performance applications such as smartphones, tablets, and laptops. Offering advanced features such as execution and support for 64-bit instruction sets. The R series are designed for automotive systems and medical devices, by providing high-performance processing with short response times. Lastly, the M series is for low-power and cost-sensitive applications, such as microcontrollers used in IoT devices, sensors, and wearables.
The main products are processor architectures and cores, which are used in various industries, some examples of how ARM technology is used in different spheres, including automotive are smartphones and tablets. In this sphere, the Cortex-A series is used as mentioned before due to its high-performance capabilities. Some primary features are efficient multitasking, faster app execution and better graphics rendering.
On the other hand, in the automotive system, ARM’s processor architectures, such as the Cortex-A and Cortex-R series, are employed in automotive applications. They power advanced driver assistance systems (ADAS) and in-vehicle networking. ARM technology helps with the correct function of advanced sensor processing and connectivity in modern vehicles.
Embedded systems are frequently used in aerospace, defence and healthcare spheres. Such systems require reliable and efficient processing capabilities. ARM’s products offer a balance of performance and power efficiency.
Lastly, in the server market, ARM utilises its NEoverse platform. The energy efficiency capabilities enable ARM processors (server) suitable for cloud computing, and computation applications.
Performance post-IPO
On September 14, 2023, Arm sold shares at $56.10 on its second public debut since its delisting in 2016. That day the stock climbed nearly 25%. Since then, it has fallen significantly due to the uncertainty as the post-IPO earnings report fell short of expectations.
On February 8th, 2024, Arm soared by almost 50% after the company reported higher revenues than expected from LSEG. The company had earnings per share rise from 25 cents expected to 29 cents adjusted, and revenues soared to $824 million, exceeding the expected $761 million.
Since the IPO, Arm’s market capitalization has almost doubled to about $118 billion. These results were also driven by strong expectations in the AI sector.
YTD Quarter
As for the current quarter, Chief Executive Officer Rene Haas and Chief Financial Officer Jason Child stated in a letter to shareholders:
“We expect next quarter to be even better and yet another record.”
“We have delivered these results through the combination of our focus on growing royalty revenue, the need for more compute and AI across all markets, demand from customers for our platforms, as well as our unrivalled developer ecosystem.”
CEO Rene Haas and CFO Jason Child, have high expectations for the future performance of the UK chip designer, a sentiment that is resonating well with investors.
They are confident that their new V9 architecture will double royalty payments and they believe that emerging applications for their technology will necessitate more computing cores per device, contributing significantly to the growth of royalty payments.
Bank of America asserts that nearly every hyper-scaler “has or is working on its internal ARM-based server CPU or exploring ARM solutions from NVDA (Grace Hopper) or other merchant suppliers.” This trend could facilitate Arm in growing its market share from less than 5% to a range of 10% to 15%, enhancing its competitive stance against Intel (INTC) and Advanced Micro Devices (AMD).
Competitors in the industry
Several major companies, including Microsoft, Apple, Nvidia, and Amazon, rely on ARM’s technology. Microsoft’s Cobalt, Amazon’s Graviton, and Nvidia’s Grace Hopper are all utilising the latest V9 chip design. Additionally, Apple has a deal with ARM that extends at least until 2040.
Intel is a dominant player in semiconductors and competes with ARM in various markets. In recent years, Intel has posed attention to enter the mobile and IoT markets, with Atom and Quark processors. They primarily compete with ARM with their x86 processors.
Apple is a unique player in the semiconductors world. Their design of processors, such as Apple Silicon (M1) used in MacBook computers, Apple Vision Pro and Apple Watches. The basic architecture of Apple’s chips is based on ARM’s architecture, however, they are personalised to meet specific requirements for different products.
Qualcomm, a leading provider of chipsets for mobile devices, is a direct competitor to ARM (in the mobile phone market). They compete by offering power efficiency to all technological devices (cellular phones, computers, laptops and tablets).
Future of key sectors: focus AI
The future trajectory of Arm hinges significantly on its connections with key markets such as: AI, PC, Smartphones, and Automotive. Among these, we anticipate that the AI sector will be the primary driver shaping Arm’s performance throughout this year.”
We believe that AI performance in 2024 will be determinate by 2 critical factors:
1. Return on investment (ROI)
Over the past 12 months, the AI sector has witnessed significant growth, marked by the robust development of AI infrastructures. The question is: will we see an actual positive ROI?
Since An Nvidia H100 costs around 42.000 $, companies will be challenged to create new products and applications for which businesses and consumers will pay more for. The absence of a positive or flat ROI could potentially lead to a pause in the momentum gained.
2. Interest Rates
Recently, the Federal Reserve (FED) has opted not to reduce interest rates, indicating a cautious approach to assessing the impact of their policies on inflation and consumer behaviour. The upcoming decisions by the FED will have a profound effect on the tech sectors and Arm’s performance.
Authors: Angelo Scarinzi & Gian Carlo Sari