The surge in interest for artificial intelligence stocks prompted options traders to heavily engage in bets on Arm Holdings on Monday. A significant number positioned themselves for further increases in the shares, which nearly doubled in price in less than a week. The stock has seen an 80% rise since Wednesday, following the company’s optimistic quarterly forecast, driven by increased demand for its technology used in designing chips for artificial intelligence functionalities. That share jump has ignited trading in the chip designer’s options, with the volume soaring to more than ten times what it was on average this month before the company’s earnings report.
Arm designs the base architecture used by large chipmakers such as Qualcomm, Apple, Samsung, and MediaTek to create their mobile phones, tablets, and other devices. It also licenses its architecture to companies making AI-specific chips, such as Nvidia. During its earnings call on Wednesday, Arm executives said customers were increasingly choosing its central processors to help power their new laptops with chatbots and other AI features and its specialized chips for AI work in data centers and automotive computing.
That is boosting licensing and royalty income for the British-based firm, which now has nearly 100 million registered users of its software. Its latest Cortex-M55 and Ethos-U55 chips offer a 15-times speed-up in running machine learning tasks compared to its previous versions. The new chips are also 25 times more energy efficient, vital in mobile devices that run on batteries, and need to save as much power as possible to stay in operation longer.
Arm’s surge has prompted some investors to start betting it will become the next Nvidia, which has skyrocketed in value since a deal was scuttled last year. That would boost SoftBank founder Masayoshi Son, who has built a global tech empire that includes Vision Fund investments in firms such as WeWork and Uber.
The Nvidia-Arm deal fell apart amid concerns that Nvidia would have too much control over a company it did not own and that the chipmaker would compete with Arm in critical areas such as graphics processing units (GPUs), where Nvidia is seen as the dominant player.
Investors will better understand how Nvidia’s market share is shifting when the company reports financial results next week. But even if Nvidia loses ground to rival AMD in that area, it is unlikely to be able to return all of its cash to shareholders because it already has a lot in the bank from its recent purchases and other capital spending.
Options traders may want to consider selling puts that guard against a potential stock price decline, ORATS’ Amberson said. The option skew – a measure of the relative popularity of puts and calls – was positive on Monday, which suggests the demand for put protection was heavy. Puts that expire in mid-October were the most active, he added. Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for stories on consumer technology, software, and semiconductor stocks.
