Short squeeze, AI FOMO, or just investing in a long-term technology winner? Arm Holdings stock is suddenly the center of attention as the chip designer moves wildly in the wake of its earnings report
Arm
shares were down 13% at $128.74 in early trading on Tuesday. Still, that only puts a small dent in the rise that had seen the stock more than double since its earnings report last week that signaled it was being boosted by artificial intelligence.
Arm’s report was definitely upbeat but even so, the rally has left it at levels that far outstrip even other AI favorites such as
Nvidia.
As of Monday’s close, Arm’s forward price-to-earnings multiple stood at around 102 times according to FactSet. That has led to speculation that short sellers are being forced to capitulate and buy shares to cover their bets against the company—although that doesn’t seem to explain the full magnitude of the move.
The real test for the stock is likely still to come with the end of the IPO lockup period, which prohibits company insiders from selling shares, and is due to expire on March 12. Arm is still more than 90% owned by Japan’s SoftBank Group.
“As long as the AI bubble does not pop, the market will be willing to look at Arm more like Nvidia and less like Intel which will provide good support to the valuation,” wrote independent analyst Richard Windsor, who publishes Radio Free Mobile.
Elsewhere, OpenAI CEO
Sam Altman
was talking about killer robots. He isn’t too worried about them.
“I’m not that interested in the ‘killer robots walking down the street’ direction of things going wrong. I’m much more interested in the very subtle societal misalignments where we have these [AI] systems out in society and through no particular ill intention things just go horribly wrong,” Altman said in a live video interview at the World Government Summit in Dubai on Tuesday.
However, overall Altman was optimistic on the direction of AI and called for a global action plan on regulation of the technology. In terms of reports Altman wants to raise as much as $7 trillion to boost global chip-building capacity, he was tight lipped. He also did didn’t say anything about what that might mean for his company’s relationship with financial backer
Microsoft.
Still, appearing at the Summit, a showcase event for the United Arab Emirates, can’t hurt chances of funding coming from the U.A.E. government.
There are signs that a chip-manufacturing boom is on the way in any case. Japan’s
Tokyo Electron
rose 13% in local trading on Tuesday after it raised fiscal-year earnings forecasts, citing a recovery in spending on chip-making equipment.
There’s just one worry about that boom, at least from an American perspective—Tokyo Electron said it was customers in China driving demand. The sales are of less advanced equipment but there are fears Chinese chip makers could flood the market for more basic types of semiconductors.
Investors still have to worry about trade wars, even if they can rest easy about killer robots for now.
Write to Adam Clark at [email protected]
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