Chips

KABOOM. One upbeat earnings call later, and the market cap of chip darling ARM balloons. Skyrockets. Indeed, it is almost triple the IPO price last September and if the company was listed on the FTSE it would tuck in somewhere behind the index heavy weights Shell and HSBC. Which is why, perhaps, when the microwave when ping, it listed where it did. Investors pay up. It does, though, leave the old-fashioned valuation metric of price/earnings, looking hot. Indeed, too hot for a small, but increasing number of short sellers, who are circling the pit reckoning, perhaps, that whilst the company dominates its patch, there are questions whether generative-AI really is going to be such a tizzy-lizzy for the share price. It is whispered that ARM’s power efficient chip design is too slow for gen-AI training. Cue much swallowing and wide eyes all round. It might be good for other things but given all the R&D that’s buzzing about in labs across the world, there are likely other options in the pipe. Read Ed Conway’s excellent Material World and it’s shockingly clear that the current supply chain for high end chips is too fragile for comfort. Hence all the political naval gazing. It’s also extraordinarily energy and time intensive to take quartz rock through to finished silicon chip. And it’s all largely reliant on billion dollar fabrication plants in the geopolitical hot potato of Taiwan. FORE! Somewhere, someone is likely working up chips that are cheaper, use less energy, and can be made in the garden shed. Some, if you read the message boards, are already in play. When a TAM, or Total Available Market, is as big as this, the competition get hungry.