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chip designer Arms (ARM) surpassed analyst expectations for its fiscal third quarter and provided a bullish outlook for the current period. Gun stocks soared Thursday on the news.
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The Cambridge, U.K.-based company said late Wednesday that it earned an adjusted 29 cents per share on sales of $824 million in the quarter ended Dec. 31. Analysts surveyed by FactSet expected earnings of 25 cents per share on sales of $762 million. Year over year, Arm’s profits increased 32% while sales increased 14%.
For the current quarter, Arm expects to earn an adjusted 33 cents per share on sales of $875 million, based on the midpoint of its guidance. Analysts were forecasting earnings of 20 cents per share on sales of $779 million.
“More customers moving to higher-value Arm v9 technology, combined with market share gains in cloud servers and automotive, resulted in strong royalty growth,” CEO Rene Haas said in a letter to shareholders.
He added: “The AI wave drove licensing growth as these new devices require Arm’s high-performance, energy-efficient computing platform.”
Arm Stocks Rise After Report
About him stock market todayArm shares soared 47.9% to close at 113.89. Earlier in the session, it hit an all-time high of 126.58.
Arm’s chip designs are used by all major semiconductor manufacturers, including Apple (AAPL), Qualcomm (QCOM), NVIDIA (NVDA) and many more. Arm provides basic designs for semiconductors produced by its customers. Chip makers customize and build on those blueprints.
The arm is focused on four business segments: customer, automotive, data center and Internet of things. Currently, its largest end markets are mobile devices and consumer electronics.
In its fiscal third quarter, royalties accounted for 57% of Arm’s total sales, while licensing revenue accounted for the remaining 43%. Royalties allow Arm to receive a payment per chip sold. The license involves giving customers access to its intellectual property portfolio to develop Arm-based processors.
Arm’s royalty rates are increasing as more customers adopt its Arm v9 technology. Royalty rates for Arm v9 products are typically at least double the royalty rates for equivalent Arm v8 products.
Chips based on Arm v9 technology now contribute about 15% of Arm’s royalty revenue, up from about 10% in the September quarter.
Arm stock is on three IBD lists
Meanwhile, the broader semiconductor market is showing signs of recovery, particularly in smartphones, which again posted strong growth in the third quarter, Arm said.
At least 12 Wall Street firms raised their price targets for Arm shares after the earnings report.
Loop Capital Markets analyst Ananda Baruah reiterated his buy rating on Arm shares and raised his price target from 69 to 120.
“Arm has become the latest in a series of very key Gen AI (generative artificial intelligence) technology infrastructure names to generate material traction and see significant and accelerated interest from Gen AI technology customers,” he said in a note to the client. “Fortunately, Arm is ultimately involved in all areas of the build: training, inference, and edge devices.”
Arm stock is on three IBD lists: Leaderboard, IPO Leaders and Technology leaders.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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