Arm Holdings reigns supreme in mobile phones, a market where its low-power, high-performance chip designs dominate. But the semiconductor design leader has been making inroads into more arenas, from automotive and cloud computing to artificial intelligence, offering tailwinds for Arm stock.
"We have such a breadth of opportunity in markets and technology demands," Chris Bergey, general manager of Arm's client line of business, told Investor's Business Daily at the CES 2024 tech conference.
Arm is focused on four business segments: client, automotive, data center, and Internet of Things. Currently its biggest end markets are mobile devices and consumer electronics. However, the Cambridge, U.K.-based tech company is gaining ground in auto, IoT, cloud and networking.
The company's "biggest challenge" is how to pursue all the opportunities in front of it as efficiently as possible to maximize its impact, Bergey, an Arm senior vice president, told IBD.
"Our biggest focus is trying to participate and take advantage of the opportunity we have in our markets," Bergey said.
Arm Stock Is A Recent Breakout
Arm stock went public for the second time in September. The company previously traded on the Nasdaq for 18 years until 2016, when Japan-based SoftBank purchased Arm and took it private.
Since its second IPO, Arm stock has been a top performer, notching a record high of 79.94 intraday on Jan. 22.
On Dec. 8, Arm stock broke out of a cup-with-handle IPO base with a buy point of 64.92. It ended regular-session trading on Friday at 71.17.
Arm's customers include every major semiconductor designer on the planet: Apple, AMD, Nvidia, Qualcomm and many more. Arm provides basic designs for the semiconductors used by its customers, but those chipmakers customize and build on those blueprints.
Arm is the leader in energy-efficient central processing units, or CPUs, mostly for smartphones. Practically all smartphones today use Arm-based CPUs, including Android-based handsets and Apple iPhones.
Providing Complete Systems
Additionally, Arm has moved into designing subsystems for the devices running its processors. The company is also adding an AI layer across its platforms.
"We're moving into subsystems and providing more complete systems for customers," Arm Chief Marketing Officer Ami Badani told IBD at CES. "We're trying to reduce the complexity for our customers."
That, in turn, helps customers get their products to market faster, she said.
Arm's bid to expand was evident at CES 2024 where its technology was featured in a number of hot products, including AI PCs and computer headsets.
Smartphones On 'Technology Treadmill'
Meanwhile, smartphones remain an important arena for Arm.
The smartphone market may be mature, but Arm benefits as the functionality of handsets increases, Bergey said. Those capabilities include improved cameras, better graphics performance, on-device AI and foldable displays, he said.
The installed base of 1.5 billion handsets worldwide is on a "technology treadmill" with constant innovation spurring upgrades, Bergey said.
An expected refresh cycle for smartphones and personal computers this year should provide a boost for Arm's royalty business.
In the third quarter, royalties accounted for 52% of Arm's total sales while licensing revenue made up the other 48%. Royalties enable Arm to get a payment per chip sold. Licensing involves giving customers access to its portfolio of intellectual property for developing Arm-based processors.
Arm Stock On Two IBD Lists
Arm doesn't have much market share in PCs today. But the company hopes that the emerging category of Arm-based Windows notebooks will give it an edge. For instance, Arm chips enable thin and light laptops with true all-day battery life, Bergey said.
In a recent client note, JPMorgan analyst Harlan Sur called Arm stock one of his top picks.
Arm "stands to benefit from the strong chip design trends given its leadership profile in semiconductor compute … and growing share in auto, industrial/IoT, and data center markets."
The next potential catalyst for Arm stock could be its fiscal third-quarter earnings report on Feb. 7.
In a semiconductor earnings preview report, KeyBanc Capital Markets analyst John Vinh noted that "Street sentiment on the name is incrementally positive, given improving smartphone demand."
Arm stock is on two IBD lists: IPO Leaders and Leaderboard.
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