ARM's Impact on AI and the Technical Setup

5月23日

Business Outlook:

If you aren't familiar, ARM Holdings (ARM) is not a chip manufacturer. They design processor architecture for the next generation of devices. This might sound like a marketing line, but it's literally their business. They specialize in energy-efficient chip design to enable increased processing capability, catering to a range of devices from servers to small gadgets like tablets and smartphones. Energy-efficient chips are essential for embedded AI processing requirements in smaller devices (about 45% of AMR's business).

As AI expands, a wave of device replacements is likely, and competition among device manufacturers should cause ARM's demand to grow exponentially. ARM designs the technology and licenses it to manufacturers, earning royalties on devices that use their architecture. This model allows ARM to scale efficiently without heavy manufacturing investments, ensuring a steady stream of revenue as their technology is adopted. They still collect royalties on products developed in the early 1990's!

Be on the lookout for ARM's next earnings report in August. They are estimated to report near the same time as AMD and SMCI. Price action between now and then will be sentiment-driven.


Technical Analysis

Here are a few charts to outline a possible continuation scenario.

From the main chart, look for a break above the Bollinger band as daily closes above or below are a strong sign of continuation. The KST indicator experienced a bullish crossover in early May, with the KST line closing above zero at the close of last week and the signal line likely to be above zero today. This indicates a sustained and favorable change in momentum. The Chaikin oscillator is overlayed with a Bollinger band. Although a more sustained positive move would be ideal, breaks above and below signal shift in the direction of the trend. Lastly, price has regained the 21-period volume weighted moving average.




ARM had a rapid and strong move after February earnings, leading to an extended 5th wave, followed by a deeper 3 wave correction that occurred near the expiration of their March 12 lockup period. It has quietly established momentum from the April low. The purple AVWAP from IPO was reclaimed in late April and then acted as support. The red from the high will likely be resistance in the first wave up. One blue AVWAP was added at the post IPO low and another at the top of wave 3 high. We'll see if these become areas of interest going forward. I drew a Fib time zone from wave 4 to wave 5, but I will likely redraw it as we build more history.




Taking a measured range from the start of this pattern and assuming that we see a test of the lower blue AVWAP would represent a 95% move.



Lastly, confluence zones with 2 Fib retraces. The first is drawn from the February high to the April low and the second from the momentum cross over in the composite index to the April low. The latter gives us a sense for nearer term targets as itis based on sentiment of market participants when we shifted to a secondary downtrend.