News & Analysis

Arm witnesses surge in market value amid AI boom

13th February 2024
Paige West

Arm Holdings has experienced a remarkable surge in its stock market value, nearly doubling in less than a week.

The Cambridge-based entity disclosed its financial outcomes last Wednesday, highlighting that the demand for AI-related technology is significantly propelling its sales forward.

Renowned for designing chips that power virtually every smartphone globally, Arm has been a pivotal player in the tech industry. The firm, acquired by Japan's SoftBank in 2016 for $32bn, made a triumphant return to the stock market in September last year after being taken private. Since the announcement of its earnings last week, Arm's shares have skyrocketed, now up by more than 98%.

This surge comes amid a wider boom in the AI sector, with chipmaker Nvidia witnessing its shares more than triple in value over the past year, driven by soaring demand for its AI chips.

While Arm's technology is not directly utilised for AI tasks, its designs are increasingly chosen by chip manufacturers, including Nvidia, for central processing units (CPUs) that support AI-specific chips. This indirect contribution to the AI industry underscores Arm's integral role in the technological ecosystem. The company's clientele extends beyond Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC) to include prominent consumer brands such as Apple. Additionally, the automotive industry's shift towards self-driving technology has sparked a growing demand for Arm-designed chips.

The recent leap in Arm's share value is particularly welcome news for SoftBank, which retains approximately a 90% stake in the company. SoftBank itself has witnessed nearly a 30% increase in its shares over the past week, offering a reprieve from the losses it faced due to the declining valuations of some of its investments, including the office space firm WeWork.

As the AI sector continues to expand, the significance of companies like Arm in the global technology landscape is increasingly evident, highlighting the pivotal role of chip design and manufacturing in powering the next generation of technological advancements.

Dunstan Power, Director of ByteSnap Design, commented: “Prior to the supply chain crisis, there had been a race to the bottom on price, with margins getting thinner and thinner. The chip manufacturers used the crisis to rapidly increase their margins as per a capitalist system. A correction was probably required - but now there is an opportunity for new entrants to cut pricing, as well as for healthy competition between the big boys. I'd expect those fat margins to get rapidly eroded. There is no room for complacency.”

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