On February 13, Beijing time, U.S. stocks closed on Monday. The share price of chip design company ARM continued its hot rise, soaring 29% again, bringing the cumulative increase in the past three trading days to nearly 100%.ARM has become another beneficiary of investors' enthusiasm for artificial intelligence (AI) stocks.
In intraday trading on Monday, ARM shares soared more than 40%. By the close, ARM stock trading volume hit a record, more than 10 times the average trading volume over the past three months. Days of gains have pushed ARM's market value to more than $150 billion, nearly three times its valuation when it went public.
Advertisement
AI stock craze
This round of gains also starts with ARM's financial report. Last Wednesday, ARM released its new quarterly financial report, predicting that revenue in the first quarter of this year will be between US$850 million and US$900 million, far exceeding the average analyst estimate of US$778 million. ARM is expanding its business scope into new markets such as AI, and is no longer limited to the traditional mobile phone field, which is driving its growth and profitability prospects.ARM CEO Rene Haas said the opportunities brought by AI are still in their early stages.
Dennis Dick, a trader at the stock trading platform Triple D Trading, believes that investors' rush for AI has boosted ARM's stock price.“What you're seeing now is investors frantically snapping up any AI-related stocks. There's algorithmic trading, retail trading, people are still buying options. It's all like a snowball, getting bigger and bigger,” he said.
Advertisement
Investors' rush for ARM stock has spawned some noteworthy trading activity, with much of the company's gains concentrated in just a few hours. Within the first 36 minutes of trading on February 8, the stock reached a high of nearly $127. Most of the stock's gains on the most recent trading day were concentrated within the first 108 minutes of the day's opening.
So far, Nvidia has been the biggest beneficiary of AI computing power demand.Nvidia's stock price more than tripled last year on what it said was a surge in revenue and profits from sales of AI accelerator chips. Nvidia's rise has continued this year, rising another 46% so far, pushing its market value to once exceed that of e-commerce giant Amazon. Nvidia tried to acquire ARM, but failed due to opposition from rivals.
ARM's popularity has also boosted the share price of parent company SoftBank Group.When ARM went public, SoftBank held approximately 90% of its ARM shares. In early trading on the Japanese stock market on Tuesday, SoftBank's shares rose as much as 11%, hitting their highest point since May 2021.
Will it rise again
The market expects this rally may continue, and traders continue to buy options, especially short-term call options.The most actively traded option currently is the $185 call option expiring on Friday, with more than 54,000 contracts changing hands and the latest trading price being around $6 each. Based on ARM's closing price of $148.97 on Monday, the stock would need to rise another 28% by the end of the week to make the expiring contract valuable.
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, which tracks short sellers, pointed out that there are currently 10.5 million short ARM shares worth approximately $1.4 billion. Short sellers believe ARM's stock price will fall.However, Dusanievsky said there is little evidence that ARM’s surge on Monday was the result of a short squeeze.A short squeeze occurs when short sellers rush to buy back shares to cover a potentially losing trade, which drives the stock price higher.
“While there was some short covering, the main reason for the rise in ARM shares was long buying,” Dusanievsky said.