Shares of Arm Ltd., the British designer of chip technology, experienced a meteoric rise of 60% on Wednesday, propelled by a robust forecast issued by its majority owner, SoftBank Group. This surge underscores investor confidence in Arm’s prospects, fueled by anticipated artificial intelligence (AI) application growth.

The driving force behind this rally lies in Arm’s projected quarterly sales and profit, exceeding Wall Street expectations. This optimism stems from the anticipated surge in demand for chips designed specifically for AI workloads, generating higher royalties for Arm through its intellectual property licensing model.

This positive outlook translates to a significant financial windfall for SoftBank, which acquired Arm in 2016 for a staggering $32 billion. The recent stock price surge has boosted Arm’s market capitalization by approximately $26 billion, exceeding its initial public offering price by a factor of two.

Analysts attribute Arm’s success to its dominant position in the smartphone market, where its chip designs power devices manufactured by both Apple and Android-based companies. SoftBank’s initial bet on Arm capitalized on this widespread adoption, and the current growth trajectory validates this strategic foresight.

Furthermore, the surging demand for AI-powered technology represents a lucrative opportunity for Arm. Its chip designs are specifically optimized for machine learning tasks, positioning it favorably to capitalize on this burgeoning market segment.

However, it is crucial to acknowledge that this newfound optimism surrounding Arm’s future does not translate to absolute certainty. The company faces stiff competition from other chipmakers like Intel and Nvidia, and navigating the intricacies of the global semiconductor industry remains a complex challenge.

Despite these potential hurdles, the recent surge in Arm’s stock price reflects a vote of confidence from investors. The company’s strategic positioning in the AI space and its established presence in the mobile market present a compelling opportunity for future growth. The coming months will reveal whether Arm can leverage this momentum to solidify its position as a leading player in the ever-evolving chip design landscape.