SAN FRANCISCO, Nov 5 (Reuters) - Chip technology

provider Arm Holdings gave a fiscal

third-quarter forecast on Wednesday that topped Wall Street's

expectations, boosted by the boom in artificial intelligence

computing.

Shares of Arm rallied 5% immediately after the report but

retraced most of those gains within minutes and up a little less

than 2%.

For the current fiscal quarter, Arm forecast revenue of

$1.23 billion at the midpoint of its guidance, which exceeded

the average analyst estimate of $1.1 billion, according to LSEG

data.

Arm's second-quarter revenue rose 34% to $1.14 billion,

higher than analyst estimates of $1.06 billion.

"When we think about what's going on with Arm in the data

center, we then kind of go back to all of this demand for AI

compute - the bottleneck is power." Arm CEO Rene Haas told

Reuters in an interview. "That's a good thing for us."

The UK chip company reported second-quarter earnings of 39

cents per share, adjusted for stock-based compensation, among

other things. Analysts expected earnings of 33 cents a share.

Arm generates revenue from licensing fees for its

semiconductor designs and collects a royalty for each chip sold

that uses its technology. Chips based on its tech often use less

energy than those made with competing chip architectures, such

as x86 used by Intel and AMD.

For the second quarter, Arm reported royalty revenue jumped

21% to $620 million. In the earnings release Arm said that it

saw growth across all of its target markets such as smartphones,

data center and automotive.

Licensing revenue climbed 56% to $515 million in the second

quarter. The company said the jump was largely due to the timing

of high-value contracts.

The company's designs power nearly every smartphone in the

world, and the company has attempted to make headway in data

centers and other markets. Chips with Arm technology generate

$200 billion a year of revenue for the many chipmakers that sell

them, according to research from TD Cowen.

Last quarter, Arm disclosed plans to invest portions of its

profits to develop its own full chips and other components. The

plan to build its own chips marks a departure from its long-time

business of supplying intellectual property to companies ranging

from Nvidia ( NVDA ) to Amazon.com ( AMZN ), which design full

chips themselves.

Haas called the finished chips the physical embodiment of a

product Arm already sells called Compute Sub Systems (CSS). The

company has taken steps to build out a team of executives and

engineers in order to develop its own chips.