Arm stock rallies on Q3 earnings beat, strong guidance

Shares of Arm Holdings (ARM) surged after the company third-quarter results topped expectations. The company also issued fourth-quarter guidance that was better-than-expected, with revenue expected to $850-$900 million versus the $778 million estimated. The chip design firm says in the release that "growth was driven by both royalty revenue and license revenue."

Yahoo Finance's Julie Hyman and Josh Lipton breaks down the details.

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Editor's note: This article was written by Angel Smith

Video Transcript

JULIE HYMAN: More earnings for you. Arm Holdings shares soaring some 23% after that company reported its numbers. Now, Arm a, very important one to watch for the semiconductor industry. Its so-called semiconductor architecture that it provides, so works with many semiconductor makers and is a good measure of demand for that industry.

The company raising its full-year outlook here as it sort of expands beyond smartphones. Revenue in this current quarter is going to be $850 million to $900 million. Analysts were looking for $778 million. The earnings prediction also above estimates and same goes for the full year of what Arm is predicting here, Josh.

JOSH LIPTON: Yeah, it's interesting because when you think Arm, you think smartphones. But when we've spoken to CEO Renee Haas and we talked to him about that, and he said, listen, obviously, that's our bread and butter. That's what we're known for. But he also talked about looking ahead and their ambitions in markets beyond smartphones and server chips, for example, and you're seeing perhaps some of that play out too in these earnings.

JULIE HYMAN: Yeah. And remember, Arm is still controlled by SoftBank, but it just had that IPO last year that was closely watched. The IPO at $51 a share and sort of initially-- as we know, last year-- at the end of last year was a little bit rocky for the entrance into the market, including Arm.

But since then it's done pretty well. As you can see from the chart, now it's trading at $77 after that $51 IPO. So we have seen an increase in the shares. And we're going to be watching this one closely and not just Arm itself. But let's keep an eye on the whole semiconductor industry to see if we see some follow through and spillover from these Arm numbers, which are pretty extraordinarily high here and you see that commensurate stock reaction.