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Valued at $143.26 billion by market cap, UK-based Arm Holdings Plc (ARM) is a global semiconductor company specializing in processor IP and related software platforms. The company designs and develops solutions such as AI platforms, CPUs, NPUs, processors, custom system-on-a-chips (SoCs), graphics and multimedia, and other development tools. It also provides technical support, consulting, and training services.
ARM's IP is licensed to develop AI technology, autonomous driving innovations, and cloud and edge computing platforms. Arm-based chips are also found across devices and wearables, as well as the vast majority of smartphones worldwide.
Since rejoining public markets a little over a year ago, near the height of artificial intelligence (AI) optimism, ARM was a frequent subject of concerns about overvaluation, and often traded above Wall Street's price targets.
Still majority-owned by SoftBank (SFTBY), ARM stock has since cooled down from its highs, and is off about 29% from its July year-to-date peak. This could present an opportunity to scoop up shares of the still-dominant AI chip stock at a discount.
Arm Beats Q2 Estimates
Arm Holdings posted its second-quarter results earlier this month, where it reported a profit of $0.30 per share, beating analysts' $0.26 per share estimate, but down 16% from last year’s profit of $0.36 per share. On the revenue front, the semiconductor company brought in $844 million, up 5% YoY and above analyst’s estimates of $808.4 million.
The standout performer during the quarter was royalty revenue, which jumped 23% to $541 million, thanks to increased adoption of Armv9 architecture, alongside a recovery in the smartphone business. License revenue, on the other hand, slipped 15% YoY to $330 million, with management citing the timing of high-value license deals.
Despite the solid quarterly results, management rolled out weak Q3 guidance, which fell short of the market’s estimates. The company forecasts revenue in the range of $920 million to $970 million, reflecting a 15% YoY rise that trailed behind estimates. Earnings for the quarter are anticipated between $0.32 and $0.36 per share, in line with market forecasts.
For the full year, management reiterated its guidance for revenue between $3.8-$4.1 billion and adjusted earnings between $1.45-$1.65 per share.
Analysts Stay Positive on ARM Stock
Analysts are still bullish on ARM, even as the stock has recently attracted its first “Sell” rating. However, the semiconductor stock has a “Moderate Buy” consensus rating overall, with 18 out of 27 analysts rating ARM a “Buy” or better.
UBS just initiated coverage of ARM stock with a “Buy” rating and a price target of $160, noting the stock's AI momentum.
In a note to clients, analyst Timothy Arcuri said AI will be a major driving player across all key end markets for Arm, from high-penetration markets like smartphones to fast-growing revenue markets like data centers. While he thinks the stock's valuation is rich, he notes that investors are still hungry for growth.
The mean price target for ARM stands at $150.54, a premium of 12.8%. The new price target from UBS suggests the stock can rise about 20% from Wednesday's close.
