Feb 8 (Reuters) - Arm Holdings shares surged more than 32% on Thursday, on track for their best day since market debut in September, powered by strong forecasts on demand for its technology to design chips for artificial intelligence features.
The stock surge was set to add over $25 billion to the British chip designer's market value at $101.92, taking it past the $100 billion level.
"Arm blew forecasts out of the water for 2024 in terms of revenue expectations and investors have also cheered the company's strong cost control measures as it surfs a wave of demand for chips for the cloud server market in particular," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Arm plays a key role in the chipmaking space as it sells blueprints and other intellectual property to create computing chips that power most of the world's mobile phones, including Apple (AAPL.O), opens new tab.
It earns revenue from licenses to other companies and on royalty rates from chips shipped with its technology.
Executives said on Wednesday customers were flocking to Arm-based central processors to complement Nvidia's (NVDA.O), opens new tab chips for AI work in data centers, and it was working on new laptops and smartphones that can handle chatbots and other AI features.
"Arm is riding on the coattails of demand for Nvidia's technology, particularly its datacentre systems," Streeter said.
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.
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, said Russ Mould, investment director at AJ Bell.
"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.
SoftBank Group (9984.T), opens new tab-controlled Arm trades at 56.46 times its 12-month forward earnings estimates, versus investor darling Nvidia's 32.66 and Advanced Micro Devices' (AMD.O), opens new tab 43.61.
China contributed to about 25% of total revenues in the third quarter, helped by growth in data centers, automotive and the recovering the smartphone market.
"The December quarter upside was more likely driven by a surge in royalty revenue from China, as well as a related-party transaction with a company that Arm invested in (we think it is Ampere)," Needham analysts said in a note.
Reporting by Samrhitha Arunasalam in Bengaluru; Additional reporting by Medha Singh; Editing by Shounak Dasgupta and Sriraj Kalluvila
