How Arm Holdings Stock Soared 118% in the First Half of 2024 -- and Why July 31 Could Bring Its Next Move Up

Arm Holdings (NASDAQ: ARM) stock soared 118% in the first half of 2024. (Shares are up 141% through Friday, July 12.) That showing made the world's leading chip designer the second-best performer among semiconductor stocks with at least small-cap market caps (above $300 million). The top performer in this category was artificial intelligence (AI) chip leader Nvidia , whose shares skyrocketed 150% in the first half of the year .

For context, in the first half, the S&P 500 index returned 15.3% and the tech-heavy Nasdaq Composite returned 18.6%.

Before we dive in, here's a snapshot of Arm: It designs architectures for central processing units (CPUs) and licenses those designs and related intellectual property (IP) to customers, which include big names such as Apple , Nvidia, and Qualcomm . CPUs based on Arm's IP are known for their energy efficiency.

Arm stock skyrocketed 93% in the three market days after the Feb. 7 earnings release

On Feb. 7, Arm released its results for the third quarter of its fiscal year 2024, which ended Dec. 31, 2023. This was the company's second quarterly report released since it held its initial public offering (IPO) last September.

Shares skyrocketed 47.9% the next day and 93.4% in the three market days following the release. The catalysts were the quarter's revenue and earnings speeding by Wall Street's estimates, guidance for the fiscal fourth quarter exceeding analysts' expectations, and management raising its full-year outlook.

In the quarter , Arm's revenue grew 14% year over year to $824 million. Adjusted earnings per share (EPS) jumped 32% to $0.29. Profit grew faster than the top line, reflecting the company's expanding profit margin. Wall Street had been expecting revenue and adjusted EPS growth of 5% and 14%, respectively.

Revenue growth was driven by an 18% increase in license revenue and an 11% rise in royalty revenue. Growth in license revenue stemmed from strong demand for advanced Arm-based CPUs for processing AI workloads.

Arm stock jumped 10%+ in the three market days after the May 8 earnings release and continued up

Arm stock pulled back 33% in mid-April, during a market downturn that particularly hurt tech stocks. But this decline was short-lived.

On May 8, Arm released its results for its fourth quarter of fiscal year 2024, ended on March 31. Shares edged down 2.3% on the following day. But after digesting the report, investors reversed course and drove shares up 10.5% in the three market days following the release. The initial decline was due to investors' disappointment that revenue and earnings guidance for fiscal year 2025 came in slightly lower than Wall Street had expected. However, the quarter's results were robust and surpassed the Street's estimates, and management's outlook for fiscal Q1 2025 also exceeded analysts' expectations.

In the quarter, Arm's revenue surged 47% year over year to $928 million, breezing by the $866 million analysts had projected. Adjusted EPS ballooned by a factor of 18 to $0.36, easily beating the $0.30 consensus estimate. As with the prior quarter, the bottom line grew faster than the top line.

License revenue surged 60% year over year to $414 million, and royalty revenue jumped 37% to $514 million. As with the prior quarter, license revenue growth was powered by companies increasing their investments in Arm's technology optimized for AI applications. Royalty revenue growth continued to be driven by "the rapidly increasing penetration of Armv9-based chips, which typically command a higher royalty rate [than the prior generation], and the recovery in the semiconductor industry," the company said in its shareholder letter.

Arm stock continued its upward trajectory through the end of the first half of the year, other than a modest pullback in mid-June. Shares gained 54% from the May 8 earnings release through the end of June.

Upcoming catalyst: Earnings release on July 31

Arm is scheduled to release its results for the first quarter of fiscal 2025 (ends on June 30, 2024) on Wednesday, July 31, after the market close. Here's the company's guidance for the quarter and the full year:

*Data source: Arm Holdings. **Calculations by author. Arm wasn't publicly traded in fiscal Q1 2024, but column three's calculations could be completed because that period's results are in the company's Registration Statement filed with the Securities & Exchange Commission prior to its IPO.

For Q1, Wall Street is currently expecting revenue of $908 million and adjusted EPS of $0.34.

For the full year, analysts are looking for revenue of $4 billion and adjusted EPS of $1.55.

Arm is three-for-three in beating Wall Street's quarterly estimates

Arm has released three quarterly earnings reports since its IPO, and it comfortably exceeded Wall Street's estimates for revenue and earnings in all three reports.

While this is a brief track record, the probability seems good that Arm will once again surpass analysts' expectations when it reports on July 31.

Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy .