$ARM yourself for Long-Term gains, Now?
On the eve of Chinese New Year’s Eve (Thu, 08 Feb 2024), US stocks were moving in different directions.
There were some outsized gains seen in semiconductor stocks, as investors looked ahead to the annual consumer-price index revision due on Fri, 09 Feb 2024.
As noted by Morgan Stanley economist Diego Anzoategui:
Last year’s revision was large, showing much weaker disinflation throughout 2022 and added uncertainty ahead.
However, do not expect another big change for impending release.
By the clock chimed at 4:00pm US time:
DJIA: +0.13% (+48.97 to 38,726.33).
S&P 500: +0.06% (+2.85 to 4,997.91). Shy of the 5,000 market.
Nasdaq: +0.24% (+37.07 to 15,793.72).
Stocks that bolstered the Indexes included:
Monolithic Power Systems, Inc. (MPWR): +14.20%
Walt Disney (DIS): +11.50%.
ON Semiconductor Corporation (ON): +4.80%.
Arm Holdings plc (ARM): +47.89%, on the back of better-than-expected earnings.
Even iShares Semiconductor ETF (SOXX) gain +2.3%, on pace for its biggest gain since mid-January.
At the same time, In the bond world, the 10-year yield was at 4.148%, up from Wednesday’s level.
If yield remains elevated, will it be enough to prevent the S&P 500 from breaching the crucial 5,000 level “permanently”?
With Chinese investors celebrating its Lunar New Year with a reunion dinner on Friday, will the US market remain as bouyant, will $ARM Holdings Ltd(ARM)$ continues to power up the chart like it did on Thursday with a whooping +47.89% gain.
Arm reported fiscal third-quarter earnings that beat estimates.
More importantly, it provided a strong profit forecast for current quarter. That really got US market excited.
Q3 2023 earnings vs LSEG (formerly Refinitiv) estimates:
Earnings per share (EPS): $0.29 cents adjusted vs. $0.25 cents expected.
Revenue: $824 Million vs. $761 Million expected. It is a +14% gain YoY.
Net income: $87 Million.
Company soared when current outlook was revealed:
Forecast EPS: between $0.28 cents & $0.32 cents vs analysts’ expectations of $0.21 cents.
Forecast revenue: between $850 Million & $900 Million vs analysts’ expectations of $780 Million.
Right back at One!
If you like to know all about the basics to Arm Holding, you could read my post dated 9 Sep 2023 - click here ! to read.
This gives you a basic overview of Arm and the “commotion” prior to its IPO, when Nvidia attempted to buy over it.
The climb.
When Arm Holding IPO on 14 Sep 2023, its listed price was $51 per share.
Approximately 4 weeks post IPO, it bottomed at $47.87 on 20 Oct 2023.
Thereafter, there was no looking back as it began it ascend, culminating on 08 Feb 2024 at $113.89 per share.
This is +123.31% gain from its IPO price.
Can it climb higher?
To be able to answer the question as “accurately” as possible, one needs to understand Arm’s business model.
Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price.
To date, it said its customers shipped 7.7 Billion Arm chips during the Q3 2023, the most recent period for which figures are available.
Royalty revenue increased +11% on an annual basis to $470 Million.
Arm attributed the jump to:
A recovery in the smartphone market.
Increase sales to automotive companies & cloud providers.
Arm said it expects growth to be driven by royalty revenue.
In recent years, Arm has emphasized its licensing business, selling access to more complete designs that semiconductor companies can plug into their planned chips.
That process saves chipmakers time and effort, and it’s more lucrative for Arm than simply collecting royalties.
It’s license and other revenue was $354 Million, up +18% YoY.
The company also noticed more companies were choosing to license its CPU designs to run artificial intelligence, and in the process that the company charges higher licensing fees for advanced designs.
Arm reported an increase in companies licensing its CPU designs specifically for running artificial intelligence workloads.
Arm notes that these advanced AI-optimized designs generate higher licensing fees compared to standard designs, a boon for the company.
In short, its an affirmative “yes” that there is more upside to Arm Holding in the intermediate to long term.
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