Shares of computer chip designer Arm Holdings (NASDAQ:ARM) are expected to sell off as the lock-up period expires.
The lock-up period restricted sales by company insiders at the time of the initial public offering last year and ran for 180 days.
Early Tuesday trading, however, belied that notion. Shares are up just over 1% to $127.70. The market capitalization has risen to $131 billion on 2023 sales of about $3 billion.
ARMing for AI
The generative artificial intelligence boom is behind the strength of ARM stock, which now sells for about 45 times last year’s revenue.
Since the start of 2024, ARM stock is up 85%, outperforming even Nvidia (NASDAQ:NVDA). Nvidia reportedly tried to buy ARM for about $40 billion in 2020. It now has a stake of just under $150 million in the stock.
ARM began its recent run after earnings, announced on Feb. 8. During the December quarter, ARM said it earned 29 cents per share on revenue of $824 million. The revenue number exceeded the top end of its own guidance by 5%.
Since those earnings were announced, SoftBank (OTCMKTS:SFTBY) founder Masayoshi Son has begun trying to raise $100 billion for a chipmaking startup to rival Nvidia . The new chips would be based on Arm designs.
Arm was founded in England in 1990 and was best known for designs that mimicked the x86 chips of Intel (NASDAQ:INTC). Companies license the designs and Arm partners with chip foundries to produce them. In its first 30 years ARM took full advantage of Intel’s market missteps, becoming a dominant supplier of chip designs for smartphones and TVs.
While ARM GPU designs compete with those of Nvidia, its CPU design will be the basis of Nvidia’s own CPU chip in 2025.
What Happens Next?
ARM stock now carries a higher valuation, relative to sales, than Nvidia. It needs to turn its new investor interest into revenue.
As of this writing, Dana Blankenhorn had LONG positions in INTC and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
