Arm's post-earnings pop leaves stock trading at over 100% premium to Nvidia

Exactly two years ago, Nvidia's attempt to purchase chip designer Arm from SoftBank came to an end due to "significant regulatory challenges."

Masayoshi Son, SoftBank's billionaire founder, has never been so lucky.

That agreement would have involved selling Arm for $40 billion, or just $8 billion more than SoftBank paid in 2016. Instead, Arm went public last year, and the company is now worth over $116 billion after the stock soared 48% on Thursday.

SoftBank still owns roughly 90% of the outstanding stock, meaning its stake in Arm increased by over $34 billion in a day.

But the rally is somewhat confounding when looking at how the market values Arm. Wall Street may start to get a clearer sense of how much investors are willing to pay next month, when the 180-day lockup period expires and SoftBank will have its first opportunity to sell.

Chipmakers Nvidia and AMD have been Wall Street darlings of late due to their central position in the artificial intelligence boom. Nvidia makes the bulk of the processors used for cutting-edge AI models like those that power ChatGPT, while large tech companies have also indicated their interest in purchasing competitive chips from AMD as they hit the market.

But Arm is now being valued at a much higher earnings multiple than either of those companies. As of Thursday's close, investors are valuing Arm at close to 90 times forward earnings. That compares to a forward price-to-earnings ratio of 33 for Nvidia and 46 for AMD, which both have significantly higher multiples than other major chip stocks like Intel and Qualcomm.

In reporting better-than-expected quarterly results on Wednesday, Arm gave investors some new data to suggest that its growth rate could persist through the next fiscal year.