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Why Arm Holdings Stock Soared 36% Last Month
Arm's stock jumped nearly 36% in June, but why? Here's what you need to know and some tips on how to navigate the red-hot stock today. Spoiler alert: Bring oven mitts to this party.
Actions of Fire arms (ARM 7.70%) increased by 35.8% in June 2024, according to data from S&P Global Market IntelligenceThe jump continues a general upward trend for the semiconductor technology expert, totaling a gain of 117.7% in the first half of the year.
Arm's gains are driven by the current craze for advanced artificial intelligence (AI) software and the hardware that powers those applications. Arm investors are also paying close attention to the global and U.S. economies.
Analyst Ratings and Economic Trends
The enthusiasm for AI technologies has significantly boosted investor interest in companies involved in AI hardware. As the success of AI Nvidia (NVDA -1.91%) And AMD (AMD 4.88%) Arm doesn’t rely directly on ARM architectures (they mostly use their own platforms) and is indirectly benefiting from the AI boom. The market’s positive sentiment toward AI advances continues to drive Arm’s stock price higher. Additionally, the company’s previous focus on low-power embedded and mobile chips is changing before your eyes. Today, you’ll find Arm-based chips everywhere in modern data centers and PC systems.
Arm stock got a notable boost from several analysts in June. At least two major analyst firms raised their price targets on Arm last month, citing strong revenue growth and potential market share gains against the likes of Nvidia and AMD. Those upbeat recommendations have boosted investor confidence in Arm’s growth prospects, leading to modest price increases along the way.
Broader market momentum also played a role in Arm’s June rally. A weaker-than-expected jobs report in May fueled hopes of a potential rate cut by the Federal Reserve, which would benefit growth stocks. The semiconductor sector is full of growth examples, including Arm. This positive macro backdrop created an environment conducive to Arm’s stock rally.
Strategic industry developments
Industry news also contributed to Arm's strong performance. Reports that Semiconductor Manufacturing in Taiwan (TSM 0.82%) TSMC's investment in extreme ultraviolet lithography suggests strong demand for next-generation chip technologies. As TSMC is a leading manufacturer of Arm-based chips, this investment suggests positive prospects for Arm's future growth.
Arm’s strategic positioning in the AI ecosystem highlights its potential for sustainable growth. The company’s advanced v9 architecture and low-power processor platforms are attracting increasing interest from major industry players, strengthening Arm’s competitive advantage in the semiconductor market.
Finally, Arm also received a rare market accolade last month. The stock was added to the Nasdaq-100 index on June 24. The prestigious index, which reports Invesco QQQ Trust (QQQ 1.04%) and other exchange-traded funds tracking the Nasdaq, includes the 100 largest and most actively traded companies on the Nasdaq Stock Exchange.
Arm’s rapid inclusion in the index following its IPO last September reminds investors of its growing importance in the global technology ecosystem. As CEO Rene Haas noted in the announcement, this achievement validates Arm’s business strategy and its critical role in delivering foundational computing solutions for AI workloads.
Watch Arm Stock Closely, But Refrain From Buying It
Arm stock isn’t cheap these days. Whether you measure valuation by price-to-earnings, price-to-sales, or price-to-free cash flow, Arm stock almost always looks cheap compared to Nvidia and AMD. In other words, Arm isn’t the AI pick of choice for value investors. Even the most hardcore growth investors might want to take it easy on this hot stock right now. In my view, Arm is the kind of AI stock that could serve your portfolio well over the long term — starting at a lower starting price.
Anders Bylund has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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