Arm Holdings Faces a Huge Test This Week. Will the Hot AI Stock Fly or Die?

Move over, Nvidia. There’s a new artificial intelligence (AI) stock making waves across Wall Street.

Arm Holdings (NASDAQ: ARM) has been public for less than six months, but the chip company best known for licensing its low-power processor designs has edged out even Nvidia so far in 2024. Through March 6, Arm stock is up 82% for the year, compared to a 79% gain for Nvidia.

Arm shares surged on its earnings report in February after the company beat quarterly estimates and raised its guidance significantly for the fiscal year. The company also made it clear that it was fully participating in the AI boom.

“The AI wave drove licensing growth, as these new devices require Arm’s performant and power-efficient compute platform,” said CEO Rene Haas in the fiscal Q3 2024 press release. The company further noted that its better-than-expected license revenue growth of 18% was due to demand for more advanced Arm CPUs as companies ramp up spending on AI.

This coming week, Arm will face arguably its biggest test as a publicly traded company. The company’s post-IPO lockup period will expire on Tuesday, meaning that insiders will have an opportunity to sell their stock for the first time. For high-flying tech IPOs like Arm, lockup expirations often create share price volatility.

If there’s major selling among insiders, the stock is likely to fall as the share price finds a new equilibrium at a higher float count. However, if the insiders hold their shares, Arm is likely to gain, as that would be a sign of confidence in its future from those who know the company best.

What to expect from Arm’s lockup expiration

Less than 10% of Arm’s 1.03 billion shares outstanding are currently publicly traded. Prior to the IPO, Arm had been owned by Softbank Group (OTC: SFTBF), which took the company private back in 2016.

Softbank sold 95.5 million shares in the IPO and gave underwriters the option of selling an additional 7 million shares. That left Softbank with roughly…