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Arm tops forecasts as artificial intelligence spurs growth outlook

IphoneDigital | Flickr

Arm Holdings PLC disclosed its third-quarter earnings on Feb. 7, beating expectations and boosting its forecast, fueled by demand for artificial intelligence.

The Ticker previously reported that Arm’s post-IPO earnings showcased strong results overshadowed by disappointing forecasts for revenue and concerns about its licensing business.

Arm’s third-quarter earnings show a 14% year-over-year increase in revenue totaling $824 million — beating the forecasted range of $720 million to $800 million — an 18% increase in licensing sales equating to $354 million and an 11% increase in royalty revenue amounting to $470 million.

Additionally, Arm increased its revenue forecast for the fiscal 2024 year from $2.96 billion to $3.08 billion to $3.16 billion to $3.20 billion. The company also forecasted a fourth-quarter revenue range of $850 million to $900 million.

Following the earnings report, shares of Arm surged nearly 50% and peaked at 74%, reaching a high of $126.58 per share on Feb. 8.

“Arm delivered another quarter of record revenue driven by continued adoption of the world’s most pervasive compute platform,” Rene Haas, CEO of Arm wrote in a shareholder letter. “More customers moving to higher-value Armv9 technology combined with market share gains in cloud server and automotive resulted in strong royalty growth. The AI wave drove licensing growth as these new devices require Arm’s performant and power-efficient compute platforms.”

Armv9-A is a set of developments to the Armv8-A architecture used to enhance the computing capabilities and security of Arm’s systems.

Haas emphasized that the company feels “strongly positioned for growth” due to increased royalties from its v9 products and cited that major tech companies’ devices run on Arm, creating “tailwinds for our licensing growth.” Arm cited key growth drivers such as its ecosystem of software and design partners, demand for energy-efficient and AI capability and compute subsystems which will increase royalty revenues. The company has a computing ecosystem with over 15 million software developers, giving them the advantage of making seamless design choices in an environment where chips “are becoming more difficult and longer to design.”

Analysts and investors acknowledged Arm’s potential in the AI movement and believe the company will continue to grow in other areas, such as its smartphone sales.

“I think what investors are expecting is that Arm is going to get into some areas that it wasn’t in before,” Patrick Moorhead, founder and chief analyst at Moor Insights & Strategy, told Yahoo Finance. “That it will likely run the table on infrastructure, which wouldn’t be good for AMD and Intel, but that it could be very big in PCs, that would be very beneficial for companies like Qualcomm. I think with this reaction they’re betting on a lot and a lot into the future and maybe even things that aren’t even on Arm’s roadmap yet.”

Goldman Sachs Group Inc. and JPMorgan Chase & Co. analysts recognized Arm’s opportunity in data centers, automotive and IoT, leading them to agree with Haas’s outlook. JPMorgan analysts believe Arm is “well-positioned” to drive an 18% compounded annual growth rate for the next three years.

Haas expressed that AI is “driving a whole new demand cycle” for computing power and that it is Arm’s biggest opportunity, noting that the movement is still in the early stages.

“We believe that AI is the most profound opportunity in our lifetimes and we are only at the beginning,” Haas said in an episode of Bloomberg Technology. “When you think artificial general intelligence and what is required to make that happen in terms of compute, power-efficiency energy, those are all great areas for us to be involved in focusing in. I think we’re in incredibly early days and I think it’s going to have an amazing impact on our planet.”

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    AnabelFeb 22, 2024 at 9:04 am

    The article was beautifully wrought and had a perfect flow. As AI becomes more prevalent in our lives, its interesting to see how fast the market for AI is growing. A definite 5 Star Rating!