Arm Holdings: Arm Holdings extends blistering rally in wake of earnings

Arm Holdings Plc is extending a big rally in the wake of last week’s blockbuster earnings report that showed artificial intelligence spending is bolstering sales.

The chip designer’s shares soared as much as 42% on Monday on volume that was more than six times the average over the past three months. The advance briefly pushed the stock’s gains to more than 100% in the three trading sessions since Arm’s results were released after markets closed on Feb. 7.

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“What you’re seeing here is a feeding frenzy for anything to do with AI,” said Dennis Dick, trader at Triple D Trading. “We’ve already seen this kind of thing with Nvidia, but now Arm is being put in the same classification. It isn’t a pure AI play, it does other things, but it does have that division, and that’s what driving the price here. It’s just about the AI boom.”

Arm is benefiting from a push beyond smartphone technology, helping fuel growth and profitability. Last week, Arm projected revenue of $850 million to $900 million for the March quarter, far surpassing the average analyst estimate at $778 million. Chief Executive Officer Rene Haas said opportunities presented by AI are still in the early stages.

There’s some expectation that this rally could continue, with traders continuing to pay up for options, especially short-term calls protecting against further share gains. The most actively traded option was the $185 call expiring Friday, with more than 40,000 contracts changing hands. It traded last at $3.75 each, with the stock at $138.40, meaning shares would need to gain another 36% by the end of the week for the contract be worth something at expiry.

So far, Nvidia Corp. has been the biggest beneficiary of AI-driven demand for computing power. The chipmaker’s shares more than tripled last year amid a surge in revenue and profits related to sales of its so-called AI accelerator chips. Nvidia’s rally has continued this year, sending the stock up another 49% and pushing its market value to $1.82 trillion, past that of Amazon.com Inc.

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Arm and Nvidia were once destined to merge as part of a $40 billion deal announced in September 2020, but they ultimately dropped the plans. The merger faced opposition from the start with Arm’s own customers scorning the idea and regulators vowing to give it close scrutiny.Arm has nearly tripled since its shares debuted in September and now has a market value of more than $140 billion, making it more valuable than Boeing Co. and AT&T Inc. The Cambridge, England-based company is still 90%-owned by SoftBank Group Corp., which acquired the business in 2016 for $32 billion.