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Arm extends gains following rally tied to Q4 guidance

Shares of Arm Holdings (ARM) continue rallying after the chip design company reported better-than-expected fiscal third-quarter earnings results last Wednesday. The company expects at least $850 million in revenue in its fourth-quarter guidance, exceeding analyst forecasts.

The strong outlook triggered a surge in Arm's stock, with shares jumping nearly 50% in total since the earnings release.

Yahoo Finance's Julie Hyman and Josh Lipton break down the details, analyzing how AI investments could have impacted investor excitement for the stock.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

JULIE HYMAN: Here's another stock that is really moving big today.

JOSH LIPTON: Yeah.

JULIE HYMAN: Like In a very exaggerated fashion. We're talking about Arm Holdings. Those shares are up 26%, extending gains in the aftermath of last week's big earnings report. And by the way, the shares rose as much as 42% in today's session. And overall, the shares are up around 50% following those quarterly numbers last week.

What strikes me here is, yes, the numbers were good, yes, the forecast was good, but when I compare its forecast to the forecast from NVIDIA last spring that really reset the whole conversation on AI, the magnitude is not the same. Arm came out and said its revenue will be at least $850 million. The average analyst estimate was $778 million.

When Nvidia came out last spring and reset expectations, it was like billions, there was the gap between expectations and what NVIDIA said. That said, it seems like there is such a desire, maybe even a desperation, on the part of investors to get in on the next big thing in AI that they just seem to be pouring into Arm.

JOSH LIPTON: Yeah. Remember we did talk though, we had a great chat with tech analyst Patrick Moorhead, when we saw these moves, and he told us like I think his exact words was something like it doesn't get much better than this. Anyway, he's talking about not just the report but as he told us, the market was growing, market share gains, expanding the footprint, in PCs.

And yes, when I think you asked him Julie, you asked him, is this a smart play for our viewers if they're thinking, if you're a long-term investor and you're looking for those smart AI plays to play that big long trend. Patrick Moorhead says yes, he would put Arm in that camp.

JULIE HYMAN: I wonder if we asked him that question again today after this continued move upward from a price perspective, from a valuation perspective, if his answer would be the same.

JOSH LIPTON: Yeah. I mean, yeah, it's interesting. I mean, his point was listen, when we talk about AI, we live in this world now, you still need the GPU, which is NVIDIA, but his point was, you still, you need the CPU and that's Arm's world.

JULIE HYMAN: Right. Well, and speaking of the GPU, as we mentioned before, NVIDIA which had been rallying today, now has turned lower. But we've been watching its market cap climb, it's now near $1.8 trillion. And last time I checked was still slightly larger than that of Amazon, which was the next largest company.

JOSH LIPTON: It is remarkable.

JULIE HYMAN: It is remarkable. The move that we have seen. I mean, it's not like Amazon's been a slouch, right? It's just that NVIDIA's gains have been so dramatic, you see there on that chart that its market cap has climbed--

JOSH LIPTON: 230% in the last 12 months, and still 90% of analysts say you should buy it. It's incredible.

JULIE HYMAN: Well, we talked to Stacy Rasgon recently--

JOSH LIPTON: Who said it's cheap?

JULIE HYMAN: He said, he said if you because the E of the PE keeps rising as well.

[LAUGHS]