Arm, a UK chip designer backed by SoftBank, has exceeded Wall Street's revenue expectations in its latest earnings report, driven by higher royalty and licensing revenue due to strong demand for artificial intelligence (AI). This surge in revenue has led to a more optimistic outlook for the year, causing Arm's shares to rise by more than 20% on Wednesday.
Arm's CEO, Rene Haas, attributed the company's success to the increasing demand for new AI applications deployed by major tech companies, calling it a "profound opportunity." The company believes that the growing demand for AI computing power will drive its future growth.
Bank of America analysts have expressed confidence in Arm's growth prospects, particularly in increased royalty fees from its latest AI-focused design architecture. Arm's revenue for the last quarter was $824 million, surpassing consensus estimates of $762.99 million. The company has also raised its full-year revenue guidance to $3.15 billion to $3.2 billion from the previous range of $2.96 billion to $3.1 billion.
Arm's improved royalty revenue from smartphones, along with its adjusted earnings per share of $0.29, has further strengthened its financial performance. This positive trajectory comes after Arm's lackluster first quarterly earnings report following its public listing in September, which was attributed to remuneration costs associated with the listing.
SoftBank, which acquired Arm for $32 billion in 2016, holds more than 90% of the company's shares. Despite initial hopes for Arm to list in London, SoftBank chose to list it in New York, believing it would yield better returns alongside high-valued US tech companies.
Arm's recent success highlights its position as a fundamental and pervasive compute platform in digital design history, with its AI-focused products driving significant growth. The company's newer Armv9 chip design architecture, powering AI applications, now accounts for 15% of its overall royalty revenues, up from 10% in the previous quarter. This architecture is used in processor chips for data centers training large language models, as well as in premium smartphones from Apple, Samsung, and Google.
Arm's strong performance in China, where it now generates 25% of its total revenue, and the growth in licensing revenue from its computing platform, Arm Total Access, contribute to its optimistic outlook. This success contrasts with the more cautious outlooks from other chip companies like Intel, AMD, and Texas Instruments, although Qualcomm also exceeded revenue expectations due to demand for AI-focused chips.
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