Artificial intelligence chip stock Arm Holdings surged as much as 152% past a recent buy point. Following that advance, is Arm stock a buy in today's stock market?
Arm stock plunged 31% last week, decisively breaking down below its key 10-week line for the first time since the December breakout move. That's a sell signal.
Shares rallied 2.9% Friday, trading around 101 a share. Arm stock remains about 40% off its 52-week high price.
Arm IPO Valued Company At $54.5 Billion
In September, Arm Holdings went public on the Nasdaq, rallying to close nearly 25% beyond the 51 offering price.
The Arm IPO priced 95.5 million shares at $51 apiece, which was the high end of its expected range of $45 to $51. That gave Arm an initial valuation of $54.5 billion. The IPO raised nearly $5 billion for majority owner SoftBank, which still owns 90% of Arm stock.
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Arm Stock Fundamental Analysis
Arm's chip designs are used by every major semiconductor maker, including Apple, Qualcomm, Nvidia and many more. Arm provides basic designs for the semiconductors produced by its clients. Chipmakers customize and build on those blueprints.
Arm is focused on four business segments: client, automotive, data center and Internet of Things. Currently, its biggest end markets are mobile devices and consumer electronics.
On Feb. 8 Arm said it earned an adjusted 29 cents a share on sales of $824 million in the quarter ended Dec. 31. Analysts polled by FactSet had expected earnings of 25 cents a share on sales of $762 million. On a year-over-year basis, Arm earnings rose 32% while sales increased 14%.
For the current quarter, Arm expects to earn an adjusted 33 cents a share on sales of $875 million, based on the midpoint of its guidance. Analysts are modeling earnings of 20 cents a share on sales of $779 million.
"More customers moving to higher-value Arm v9 technology combined with market share gains in cloud server and automotive resulted in strong royalty growth," Chief Executive Rene Haas said in a letter to shareholders.
He added, "The AI wave drove licensing growth as these new devices require Arm's performant and power-efficient compute platform."
As a result of that fundamental strength, Arm stock has a best-possible 99 EPS Rating.
IBD's proprietary Earnings Per Share Rating allows you to quickly identify stocks with the strongest profit performance. The EPS Rating takes into account the growth and stability of a company's earnings over the past three years, with extra weighting put on the most recent two quarters. The result is assigned a rating of 1 to 99, with 99 being best.
AI Chip Stock's Technical Analysis
Arm stock is trading sharply below its 50-day moving average line, a key level to watch and more than 40% off its 53-week high.
On Feb. 12, Arm shares soared as much as 152% past a 64.92 cup-with-handle entry. Shares initially broke out on Dec. 8. Arm is on IBD Leaderboard.
Due to its solid quarterly earnings growth in recent quarters and a strong price history, Arm stock boasts a perfect 99 IBD Composite Rating, according to the IBD Stock Checkup. The Composite Rating helps investors easily measure a stock's fundamental and technical metrics.
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Is Arm Stock A Buy Right Now?
With the stock more than 40% off its 52-week high and sharply below its 50-day line, Arm stock is not a buy right now.
Investors should wait for the stock to decisively retake the 50-day line or break out past a correct buy point before purchasing shares.
For more leading stocks and stocks approaching buy points, check out IBD Stock Lists, like the Stocks Near Buy Zones. To see the current stock market trend, check out IBD's signature daily analysis, The Big Picture.
