Key points:

  • Shares of Arm Holdings rose more than 40% on Monday, February 13th.
  • Arm’s market value reached a record $141 billion.
  • Arm shares are trading at extremely high earnings – the company’s dynamics are reminiscent of Nvidia.

On Monday, the value of Arm Holdings shares surged by over 40%, continuing a momentum driven by positive sentiments surrounding artificial intelligence. The shares, currently trading at $139.65, have seen a 21% increase, reaching $164, which is 42% higher than the closing price on Friday.

This substantial surge on Monday has propelled Arm shares to a remarkable growth of over 80% since the British technology company emerged as Wall Street’s newfound darling in the field of artificial intelligence last Wednesday. This newfound status was attributed to the company surpassing Wall Street expectations in its quarterly guidance.

Could optimism be premature?

Arm’s market capitalization has achieved an all-time high of $141 billion, nearly tripling since its initial public offering in September last year. Despite such a rapid increase, analysts find little indication that Monday’s surge in stock value is the result of a short squeeze, a scenario where sellers hurry to repurchase shares to mitigate potential losses. The primary driving force behind these dynamics appears to be the increased acquisition of long shares rather than any significant short-covering activity.

Following Monday’s notable rally, Arm shares are presently trading at an exceptionally high multiple of 99 times earnings expectations, based on LSEG data. This valuation remains elevated even after analysts substantially revised their earnings estimates upward the previous week.

Arm becomes Nvidia’s competitor

Arm’s recent upsurge draws parallels with Nvidia‘s substantial increase in May 2023 when the chipmaker highlighted a surge in demand for its chips driven by artificial intelligence computing. Following Nvidia’s remarkable stock market value tripling the previous year, the company surpassed on Monday, securing the position as the fourth most valuable company on the U.S. stock market, closely trailing Alphabet.

In contrast to Nvidia, only a fraction of Arm shares are available for trading. Post the initial public offering (IPO), Softbank, the owner, retained a significant 90.6% of the shares. The top 10 shareholders of the chip designer command almost 95% of its shares, as reported by LSEG. In comparison, Nvidia’s 10 largest shareholders hold roughly a third of the company’s shares.