Why Arm Stock Absolutely Destroyed the Market Today

Shares of Arm Holdings (NASDAQ:ARM), the semiconductor company that went public last September, were having a day to remember today as the stock soared following its third-quarter earnings report.

The company easily beat estimates on the top and bottom lines, and its numbers indicate that it would start to benefit from the artificial intelligence (AI) boom, as it said it was bringing AI to billions of Arm-based devices.

The stock was up 57.4% as of 11:22 a.m. ET on the news.

Image source: Getty Images.

Arm jumps on the AI bandwagon

In the context of the broader slowdown in the semiconductor industry, Arm reported solid revenue growth of 14% to $824 million, well ahead of the consensus at $761.6 million.

Royalty revenue rose 11% to $470 million, driven by recovery in the semiconductor industry, and the ramp of Armv9-based chips, which generally earn a higher royalty rate. License revenue was also better than expected, rising 18% to $354 million, driven in part by demand for advanced Arm CPUs due to increasing investment in AI from its partners.

On the bottom line, growth was strong as well, with adjusted operating profit rising 17% to $338 million, giving it an adjusted operating margin. Adjusted earnings per share rose from $0.22 to $0.29, which beat the consensus at $0.25.

CEO Rene Haas said:

Arm delivered another quarter of record revenues, driven by continued adoption of the world's most pervasive compute platform. More customers moving to higher-value Armv9 technology, combined with market share gains in cloud server and automotive, resulted in strong royalty growth. The AI wave drove licensing growth, as these new devices require Arm's performant and power-efficient compute platform.

Can Arm keep climbing?

Looking ahead, Arm's guidance for the fiscal fourth quarter was also better than expected, at $850 million-$900 million in revenue, which reflects 38% growth at the midpoint and compares to the analyst consensus of $780.3 million.

On the bottom line, the company sees adjusted earnings per share of $0.28-$0.32, which compares to the consensus at $0.21.

With today's surge, Arm has become the latest winner in the AI boom. Considering we still appear to be in the early stages of the AI rollout, Arm stock could easily move higher from here.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.