Arm’s CEO says the AI ​​boom is just beginning after record rally

(Bloomberg) — Shares of Arm Holdings Plc rose as much as 64% on Thursday after spending on artificial intelligence helped bolster the chip designer’s forecast. The company’s CEO said the incredible opportunity presented by artificial intelligence is still in its early stages.

“Artificial intelligence in no way shapes or creates the hype cycle,” Rene Haas said in an interview with Bloomberg Television. “We believe that artificial intelligence is the greatest opportunity of our lives, and we are only at the beginning.”

The comments followed Thursday’s wildly successful earnings report, when Arm forecast March quarter revenue of $850 million to $900 million. That far exceeded analysts’ forecasts of $778 million. Profits will be about 30 cents excluding some items, well above Wall Street estimates of 21 cents.

Arm’s technology is used in an increasingly wide range of products, from phones to cars to household appliances. Haas said efforts to add artificial intelligence technology promise to accelerate that expansion. In some cases, electronics manufacturers don’t yet know how to fully leverage AI – they just want to make sure they have enough processing power to handle whatever comes next.

Arm used to focus on smartphone technology, but that market now accounts for about a third of its sales. Today’s phones also include more of the company’s technology per device, which helps increase the licensing fees manufacturers pay to Arm.

“This is the result of strategies that were implemented many years ago and are already producing results,” Haas said in an interview. “A lot of people didn’t really understand the company well and where we fit in: we’re in the Tesla vehicle, the Ford F-150, we’re in the smart camera, Samsung TV, and smart devices.

Arm’s bullish outlook late Wednesday fueled the biggest daily share price gain since its initial public offering last September. Shares traded as high as $126.59, adding tens of billions of dollars to Arma’s market valuation.

Another tailwind: The company’s customers are switching to a new version of the technology called V9, which comes with double the royalty rate of its predecessors. They also use more ARM compute cores per device — more than 100 in Microsoft Corp.’s new server chips, for example. — which increases royalties. Executives say Arm is also gaining market share from competing technologies in data centers and automotive markets.

Arm now expects sales of $3.16 billion to $3.21 billion in fiscal 2024, which runs through March. This is up from the previous range of $3.08 billion.

Fiscal third-quarter revenue increased 14% to $824 million. After excluding certain items, earnings were 29 cents per share. Wall Street projected revenue of $760 million and earnings of 25 cents per share.

Arm’s joint venture in China was also a “nice, positive surprise,” according to CFO Jason Child. Its share in total revenues was 25%.

The arm plays an extraordinary role in the semiconductor industry. Licenses the basic set of instructions used by software to communicate with chips. The company also provides the so-called design blocks that companies like Qualcomm Inc. they use to build their products.

Under Haas, Arm aimed to provide more complete systems that could be taken directly to production. This change makes it more useful for some customers, such as cloud computing companies such as Amazon.com Inc., but also more competitive for some traditional customers, such as Qualcomm.

Cambridge, England-based Arm is still 90% owned by SoftBank Group Corp., which acquired the company in 2016 for $32 billion. The 2023 IPO raised $4.9 billion, making it the largest U.S. stock market debut of 2023.

Read more: SoftBank heads towards profit and refocuses its strategy around the arm

Arm’s licensing sales increased 18% to $354 million last quarter, and royalty revenue increased 11% to $470 million.

Arm’s client list spans the technology industry. Apple Inc. uses its instruction set for processors that run iPhone and Mac computers. Amazon relies on Arm designs for its Graviton server processors for data centers. Qualcomm and MediaTek Inc. are the primary users of Arma’s smartphone processor designs.

— With help from Subrat Patnaik, Caroline Hyde and Ed Ludlow.

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