Shares of Arm Holdings (ARM +2.71%) bounded higher in March, gaining as much as 18.7%, according to data supplied by S&P Global Market Intelligence.
The catalyst that sent the semiconductor specialist higher was the development of Arm's very first in-house production artificial intelligence (AI) chip and the ensuing reaction from Wall Street.
Image source: The Motley Fool.
The dawn of a new era
Arm has been at the forefront of semiconductor design for decades, licensing the blueprints for a vast array of chips used in smart TVs, personal computers, and smartphones. More recently, the company has been instrumental in designing processors used in cloud computing, hyperscale computing, data centers, and AI. This is, however, the first time Arm has created its own in-house silicon. While the move has been long rumored in the industry, it was met with cheers from investors.
Unveiled at an event in San Francisco last month, the Arm AGI CPU is "the first production silicon from Arm, designed for AI infrastructure at scale." The company noted the processor was created and "ruthlessly optimized" for running AI inference in data centers, according to cloud AI chief Mohamed Awad.
The processor sports up to 64 CPUs and roughly 8,700 cores, which produce "two times the performance-per-watt than you can [get] from an x86 rack," Awad noted. "That means twice as much performance in the same footprint, in the same power." He also said Arm's architecture is "super-efficient," using significantly less energy than competing CPUs at a time when the industry is focused on reducing power consumption.
In an interview after the unveiling, CEO Rene Haas estimated that Arm would generate $25 billion in annual revenue and earnings per share of $9 by 2031, with $15 billion in sales from the Arm AGI CPU. For context, the company is expected to generate $4.9 billion in sales in fiscal 2026 (ended March 31), so this forecast, if accurate, will take Arm's financial results to the next level.
NASDAQ: ARM
Key Data Points
Wall Street's finest scrambled to update their financial models and estimates on the heels of this revelation and widely applauded Arm's strategic pivot. Guggenheim analyst John Difucci maintained his buy rating on the stock and raised his price target to a Street-high $240. For those keeping score at home, that represents potential upside for investors of 61% compared to Monday's closing price.
Difucci noted that "we are confident in the company's ability to execute," calling Arm's move "transformational." He also acknowledged the potential risk involved in "launching a new opportunity," and will continue to monitor the company's execution.
Arm isn't cheap, selling for 49 times next year's expected sales. However, assuming management's estimates are correct, the stock is selling for less than 17 times estimated 2031 earnings. When viewed in that light, this could represent a compelling opportunity to pick up shares of Arm for an attractive price.
