Arm shares soared as much as 37% on Monday, as the earnings-driven rally for the chip design firm continued to unfold.
While
Arm
has given back some of the session’s earlier gains, the stock remains about 27% higher, at around $146.80, and is now up more than 80% over the past three trading sessions. At this morning’s peak at $164, the stock was trading for more than triple its September 2023 IPO price of $51.
The huge run-up in Arm shares has been a windfall for
SoftBank Group,
the Japanese technology holding company, which had owned all of Arm before last year’s stock offering.
Arm was acquired by
SoftBank
for $32 billion in 2016. SoftBank tried but failed to sell the company for $40 billion to
Nvidia
in 2022 — the deal was squashed by regulators in the face of widespread opposition from Arm’s licensing customers. After the IPO, SoftBank maintained a stake of more than 90% in Arm shares—929.7 million shares.
Arm now has a market capitalization of about $145 billion, with SoftBank’s stake worth more than $129 billion, well more than SoftBank’s own market cap of $84 billion. SoftBank shares have rallied 8% on Monday, and more than 28% over the past three days.
For the December quarter, Arm reported revenue of $824 million, well ahead of the Street’s consensus forecast for $762 million as tracked by
FactSet.
For the March quarter, Arm projected revenue of between $850 million and $900 million, blowing past the old Street consensus of $779 million.
There is chatter on the social media platform X that the stock is being affected by a short squeeze. As of Dec. 31, according to Nasdaq, the short position in the stock was about 9.3 million shares, which is about equal to the average daily trading volume in the stock. Trading volume soared to more than 106 million shares on Thursday following the earnings report, and has already topped 74 million shares today.
While Arm has just over 1 billion shares outstanding, only about 95 million are trading in the public market at this point. The lockup agreement that covers both SoftBank’s shares and stock held by insiders expires on March 12.
S3 Partners managing director Ihor Dusaniwsky, an analyst who tracks short-selling activity, comments that Arm is “a very squeezable stock,” and he notes that short positions have accumulated losses month-to-date of $699 million. But he also asserts that “this is not a squeeze driven rally, it is a long buyers rally.”
“Even if every Arm short was squeezed out of their position it would amount to just 4% of total shares traded over the last four days,” Dusaniwsky adds. Therefore an ARM short squeeze cannot be the primary driver of the current rally in the stock price.
On the SoftBank earnings call last week, CFO Yoshimitsu Goto was asked about the company’s plans for its Arm stake, and his answer was noncommittal.
“Like I keep saying, we are the company that has the biggest confidence in Arm’s growth potential,” he said. “Of course, we can utilize Arm assets in different ways. For example, using Arm shares for margin loans…There are a lot of options that we can select to support investment from a financing perspective.”
Neither Arm nor SoftBank immediately responded to a request for comment.
Write to Eric J. Savitz at eric.savitz@barrons.com
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