Can ARM's strong performance lead to a stock price reversal? Showcasing its presence in the AI datacenter market [Earnings Preview].

$Arm Holdings (ARM.US)$The semiconductor manufacturing equipment related to technologies like lasers is strong, with a psychological improvement due to the recovery of NVIDIA's stock in the U.S.Earnings announcement scheduled for after market close on July 31st (local time).Earnings announcement scheduled for after market close on July 31st (local time).
●The stock price has fallen 20% from its high, and there is a possibility that a good earnings report could trigger a stock price reversal. Points to watch for:
　1）Pay attention to the guidance rather than the results to see if the performance recovery continues.
　2）There are signs of recovery in the core smartphone market, which is positive for the company's royalty income. With the acceleration of the replacement cycle due to AI smartphones, it is a tailwind for buying.
　3）Will there be progress in the future growth areas of datacenters and the AI computer market?
●[Note]

2) The main smartphone market shows signs of recovery, which is positive for the company's royalty income. If the replacement cycle is accelerated by AI smartphones, it will be a tailwind for the company.
The global smartphone sales are showing signs of recovery. According to the research firm IDC, global smartphone shipments from April to June increased by 6.5% compared to the same period last year, marking the fourth consecutive quarter of positive growth. For the company, which holds nearly 100% market share in the smartphone market,it is expected to lead to an expansion of royalty income.}

For the full year of 2024, it is expected that smartphone shipments will increase by 8% compared to the previous year, and a gradual recovery is expected to continue in the second half of the year. AI-powered smartphones may stimulate consumer purchases. Companies like Samsung Electronics and $Apple (AAPL.US)$are strengthening their AI-powered smartphones. According to Bloomberg, Apple is aiming for a 10% increase in shipments of the new iPhone model scheduled to be announced this fall compared to the current model. TSMC, the world's largest foundry and a key customer of Apple, $Taiwan Semiconductor (TSM.US)$also revealed in its recent earnings report that the demand for the 3nm chips primarily used in AI-powered smartphones and their devices is growing steadily. If the upgrade cycle is accelerated by AI-enabled smartphones, it would also be a positive factor for ARM. It will be interesting to see if there are any positive comments from the management team regarding this in the earnings call.

The expansion of the adoption of their new architecture 'v9' is also worth noting. The royalty rate for 'v9' is about twice that of the previous 'v8', so if the adoption continues to accelerate, it will lead to an expansion of royalty income.

4) Whether there will be progress in the datacenter and AI computer markets, which are future growth areas for the company
In the datacenter and computer markets, ARM has a low market share, with Intel's 'x86' architecture holding the majority share. However, the expansion of AI implementation in datacenters and the popularity of AI computerspresent business opportunities for ARM.is turning out to be.

In the AI computer market, $Qualcomm (QCOM.US)$Snapdragon X Elite, based on ARM-based design, is Microsoft's AI computer that was released in mid-June this year. $NVIDIA (NVDA.US)$In the datacenter market, Grace Blackwell, recently announced by NVIDIA, combines ARM CPUs and NVIDIA GPUs. Grace Blackwell is scheduled to start shipping in the second half of the year.

During the earnings call in early May, the management stated, 'The adoption of ARM in AI applications and datacenters will accelerate with Grace Blackwell.' At the JP Morgan TMC Conference in late May, strong momentum in the cloud computing sector of the datacenter market was noted. It was suggested that the market penetration of ARM in the cloud computing sector could increase from the current 10% to 15%.Whether there have been developments that support the positive outlook of the management will also be a focus of attention in this earnings call.Immediately following the earnings announcement, there may be fluctuations in stock prices, but in the medium to long term, the performance outlook is important. In the short term, the trend of the AI market may also have an impact.

[Note]
◇Stock price reaction on the day after the earnings announcement.
When we look at the stock price reaction on the day after previous earnings announcements, we can see that out of three instances, in two instances the stock price declined (Graph ① and ③). This was due to weak guidance. In the remaining one instance (Graph ②), the stock price surged. This was because both the actual results and guidance significantly exceeded market expectations.