Shares of Nvidia Corp. are up a staggering 240% in the past year, while Super Micro Computer Inc. has surged ahead by 760%. With such impressive gains, investors are eager to identify the next big winner in the rapidly growing artificial intelligence (AI) industry.
Recent events suggest that Wall Street has pinned its hopes on Arm Holdings PLC as the next major player in the AI market. Arm's stock soared by 29% in Monday's session and has nearly doubled since the company announced its earnings last Wednesday.
Although Arm's latest results and guidance were undeniably impressive, analysts note that they do not fully account for the magnitude of the stock's rally. According to Jordan Klein, a desk-based analyst at Mizuho, the surge in Arm shares appears to be driven by retail investors who view Arm as a much larger opportunity in AI than previously anticipated. As a result, these investors are rushing to get in on the action.
The semiconductor sector as a whole has been attracting investments from all corners, with investors searching for the "next key enabler for AI." In the wake of Arm's latest report, earnings expectations have risen. Analysts now predict $1.49 in adjusted earnings per share for fiscal 2025 compared to the consensus estimate of $1.36 as of late January.
Despite these optimistic projections, Arm's stock price has surged even more dramatically. Currently, Arm shares trade at a staggering 100 times the estimated fiscal 2025 earnings per share.
According to Klein, investors are now disregarding traditional valuation metrics, and the fact that Softbank owns 90% of the company's shares has further limited the stock's float.
The remarkable rise of Arm Holdings has dealt a heavy blow to short sellers, resulting in paper losses of approximately $445 million on Thursday alone.
In conclusion, Arm Holdings appears to be the AI investment opportunity that has captured the attention of retail investors. The surge in the company's stock price suggests that its potential in the AI market is being widely recognized, even surpassing traditional valuation considerations. With limited shares available on the market, Arm Holdings is indeed a unique and exciting player in the semiconductor space.
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