(Bloomberg) -- Arm Holdings Plc was already one of world’s most expensive stocks for its size heading into last week’s earnings report. After three days of manic share buying, it’s now in a league of its own.

The stock is priced at 38 times revenue projected over the next 12 months, after jumping more than 90% since the chip designer gave a bullish sales forecast that it attributed in part to artificial intelligence spending. That’s far more expensive than any stock in the Nasdaq 100 or the S&P 500, including Nvidia Corp., according to data compiled by Bloomberg.

The stock fell about 10% on Tuesday, but it is coming off a four-day surge of more than 100%.

The magnitude of the rally in Arm’s shares — to now nearly triple the IPO price — has captivated traders, who have watched the stock add the equivalent of PayPal Holdings Inc.’s market value in the past three days. Despite the rapid gains, the surge doesn’t appear to be driven by short covering with bets against the stock weighing in at just 1% of shares available to trade, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Arm designs semiconductors used in a wide range of products including smartphones, cars, televisions and appliances. The company is benefiting from a corporate scramble to add artificial intelligence technology, which promises to accelerate Arm’s expansion, Chief Executive Officer Rene Haas said last week. The U.K.-based company forecast sales of $850 million to $900 million in the current quarter, far surpassing analyst estimates.

Up until recently, the AI chip story has been confined to the accelerator market — chips used to train large language models that underpin generative AI services like ChatGPT. That portion of the industry is dominated by Nvidia with Advanced Micro Devices Inc, Broadcom Inc. and Marvell Technology Inc. seen as having a chance to cash in on the gold rush. 

Other chipmakers including Intel Corp. and Qualcomm Inc. have argued that for AI to become a mainstream technology, it has to make it on to end-user devices like personal computers and smartphones. But they’ve been able to show few benefits to their finances, yet.

Arm is the first to back up that assertion with numbers. That’s most notable in its licensing division where it showed that more companies are planning on using its technology to build chips to support their AI ambitions.

Despite the promise, the stock has risen so far that it’s left even bullish investors concerned that its gains are out of touch with fundamentals. On Feb. 9, Banco Santander analyst Carlos Trevino cut his rating on Arm to the equivalent of sell from buy, citing the difficulty in justifying such a move. 

Consider Arm’s revenue growth projections relative to Nvidia’s. Wall Street estimates call for Arm’s sales to rise 23% in the fiscal year that ends in March 2025. Nvidia is expected to see sales jump 60% in its fiscal year that ends in January 2025. That stock is half as expensive as Arm, with a price to estimated sales of about 19 times.

Read more: Arm Extends Blistering Rally as Stock Nearly Triples Since IPO

“In momentum markets you often see people going after certain names, which get started going and then keep going and going,” said Joseph Saluzzi, co-head of equity trading at Themis Trading. “You can worry about valuation and extrapolate what would have to happen for the valuation to be justified, but the market can make you look stupid by continuing to go up.”

On Monday, the company attracted its highest call volume on record, with investors bidding up the cost of short-dated calls — signaling continued demand for upside exposure.

On Wall Street, analysts are mostly bullish. Of the 32 analysts covering the stock, 18 have buy ratings and just three say sell. The average price target sits around $90, which implies a decline of 39% from the stock’s $148.97 closing price on Monday.

Such a drop would not surprise Dennis Dick, head trader at Triple D Trading, even though he notes that momentum can continue to carry the stock higher. 

“When stocks are being driven by a story - and this is being driven by the AI story - the valuation takes a backseat,” he said. 

“Speculative investors will pay anything, but when valuation matters again, what you’ll have is a gap between what speculative investors and what value or even growth investors are willing to pay. When this stops, there will be no one to sell to.”

Tech Chart of the Day

As big tech stocks continue to rally, the battle for the world’s third most-valuable publicly-listed company is heating up between Saudi Arabian Oil Co., Alphabet Inc., Amazon.com Inc. and Nvidia. The cohort only trails fellow mega-caps Microsoft Corp. and Apple Inc. The next catalyst comes when Nvidia reports earnings on Feb. 21.

Top Tech News

• OpenAI’s Sam Altman said the United Arab Emirates could serve as the world’s “regulatory sandbox” to test artificial intelligence technologies and later spearhead global rules limiting their use.
• Elon Musk’s X is adding new advertiser targeting features to better entice video creators and compete against YouTube.
• Sony Group Corp. may report the PlayStation 5’s strongest holiday quarter yet on Wednesday, helped by the blockbuster release of Marvel’s Spider-Man 2 and the launch of a slimmer and lighter version of the console.
• An Ohio federal judge granted a tech industry group Netchoice’s request to block enforcement of a state law that would require online platforms to identify would-be users under age 16 and obtain parental consent.
• India’s fintech giant Paytm is potentially fighting for its survival after the central bank ordered halting much of its business activities, according to Macquarie Group Ltd. Shares tumbled to a fresh low.

Earnings Due Tuesday

• No major earnings expected

--With assistance from Ian King, Subrat Patnaik and Carly Wanna.

(Updates to market open, adds details on Arm call volume.)

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