Arm Holdings plc (ARM), the esteemed UK-based chip designer, has been soaring to remarkable heights on the coattails of the artificial intelligence (AI) revolution. With its shares skyrocketing 25% on the first day of trading alone, Arm’s innovative chip designs have become indispensable for tech juggernauts like AMD, Apple, Nvidia, and Qualcomm.
Arm’s bold vision of achieving 100 billion AI-ready devices by the next year, alongside its swift inclusion in the Nasdaq-100 Index, serves as a testament to its profound impact and growing presence in the tech realm.
Understanding the Arm Holdings Stock
Established in 1990, Arm Holdings plc (ARM) stands at the forefront of computing innovation. With a market capitalization of approximately $118.9 billion, the company’s energy-efficient processors and software platforms power over 290 billion chips worldwide, spanning from sensors to supercomputers. Notably, Arm’s stock has surged by almost 48% in 2024, outshining the S&P 500 Index’s YTD return of just 8.6%.
Even after a recent downturn from its peak, ARM remains relatively expensive from a valuation standpoint, trading at a premium of 147.73 times forward earnings, or roughly 73 times forward adjusted earnings, a key point of contention among critics.
Analysis of Arm’s Performance Post Q1 Earnings
After posting its fiscal 2025 Q1 earnings on July 31, ARM witnessed a sharp decline of 15.7% in its stock price. Despite revenue surging by 39% to $939 million year over year, driven by thriving AI demand and increased adoption of its compute subsystems, the company’s somewhat lackluster full-year forecast overshadowed its positive quarterly results.
Notably, royalty revenue reached $467 million, showing a 17% uptick from the previous year, primarily due to the increased use of Armv9-based chips and robust growth in premium smartphones. Meanwhile, license and other revenue saw an impressive 72% annual surge to $472 million.
Although ARM surpassed expectations in terms of revenue and earnings, its underwhelming guidance for the full year, coupled with the decision to halt the disclosure of Arm-based chip shipments, gave rise to negative sentiment in the market.
Analyst Expectations for Arm Holdings Stock
Despite the subdued outlook, Wall Street analysts rushed to defend Arm following its Q1 earnings release. Bank of America’s Vivek Arya, in a post-report analysis, highlighted the company’s strategic advantages in key semiconductor trends and maintained a “Buy” rating with a $180 price target.
Moreover, Citi analyst Andrew Gardiner raised his price target for Arm to $170 from $140, emphasizing the company’s enduring licensing strength in the face of short-term royalty challenges. The consensus among analysts leans towards a “Moderate Buy” for ARM stock, with significant potential upside based on their price targets.