The semiconductor sector is seeing a bifurcation building in today’s session. Leading the pack today is Arm Holdings (NASDAQ:ARM), with ARM stock surging 30% in afternoon trading. This move has dwarfed that of rivals Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), which were actually in red at the time of writing.
Interestingly, ARM is moving on very heavy volume (more than 10 times the stock’s average daily volume) today. This high-volume move appears to be related to last week’s earnings report, which saw the stock surge higher both during Thursday’s and Friday’s session.
However, the voracity of this move three trading days following the company’s earnings results is intriguing, to say the least. Let’s dive into what investors may want to watch as the market prices in a major market capitalization boost to this chipmaker.
Why Is ARM Stock Surging Today?
Arm’s previous third-quarter earnings results certainly stoked tremendous investor interest in the chipmaker, particularly given the company’s positioning within the artificial intelligence (AI) race. A bullish growth forecast has investors penciling in higher top-and bottom-line growth for years to come. Such growth rate changes can materially affect valuations in the near term, which is likely what we’re seeing today.
That said, such a move isn’t normally seen so long after an earnings report, and in particular for companies with a market capitalization in excess of $100 billion. Today, ARM stock is trading more like a meme stock or penny stock than the industry juggernaut it is.
Arm’s updated business model, in which the company announced it would be raising prices on its latest instruction set, could lead to a surge in royal revenue and allow the company to profit off of continued AI chip demand. With Arm’s move into new verticals, the company’s growth prospects certainly have investors paying attention to this mega-cap company.
It’s also worth noting that ARM’s existing float is limited, in part due to a majority stake still held by SoftBank (OTCMKTS:SFTBY). When a key 180-day lockup period expires, it will be interesting to see how many shares enter the marketplace and whether selling pressure drags this stock lower. Accordingly, I think a cautious approach to ARM stock may be warranted at current levels, particularly after today’s impressive move.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
