Shares of British chipmaker Arm, owned by Japanese holding Softbank, rose more than 30% on Wednesday as the company forecast quarterly sales and earnings that exceeded Wall Street expectations. Customers are racing to develop new chips to run artificial intelligence (AI), generating top royalties. This is reported by Reuters.
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The growth of Arm shares increased the company's market capitalization by approximately $26 billion. Arm is now trading at $102.11, which double the price of $51 set during the initial public offering in September.
Reuters noted that Arm is unique in that it supplies a library of blueprints for competitors in the chip manufacturing industry. Its majority owner SoftBank Group bet in 2016 that Arm could leverage its dominance in smartphones, where it occupies a central position in both Apple and Android devices.
According to LSEG, average Arm's fourth-quarter 2023 sales and adjusted earnings are $875 million and 30 cents per share, respectively, above $780.3 million and 21 cents per share.
Arm expects revenue from licenses for chips that power artificial intelligence in data centers, phones and computers to be a significant driver of the company's growth.
Since 2016, Arm has significantly diversified its business. Smartphones now make up 35% of the total number of chips shipped, compared to 60-70% in 2016.
Two ways to make money
Arm makes money in two ways: through licensing agreements for its intellectual property ownership and royalties charged for each chip sold using its technology.
In recent years, more Arm customers have begun using the ninth and newest version of its core chip architecture, which is important to Arm's bottom line as the company charges roughly double royalty rate for this chip.
About 15% of Arm's royalty income comes from ninth-generation technology, compared to 10% in the previous quarter.
“ The Ministry of Finance wrote that Arm filed an application for an IPO in August 2023, which could become the largest in 2023.