Arm Holdings reported disappointing fiscal first-quarter earnings, causing a 12% stock price drop, with lower guidance

From Morningstar: 2024-08-13 05:14:00

Arm Holdings reported its fiscal first-quarter earnings, with revenue of $939 million and adjusted EPS of $0.40, falling short of investor expectations. The stock price dropped 12% to about $126 per share. Quarterly sales guidance of $780 million-$830 million was lower than anticipated. Morningstar maintains a fair value estimate of $66 per share for Arm.

Arm’s revenue growth is being driven by the adoption of its v9 architecture, which carries double the royalty rates of its predecessor, v8. The firm expects royalty revenue growth in the low-20% range. Arm holds a wide economic moat based on its IP ownership and high market share in battery-powered devices. Arm is financially healthy with $1.6 billion in cash and no debt.

Key risks for Arm include overreliance on the Chinese market and the slow but steady adoption of the RISC-V architecture. Arm faces uncertainty regarding potential IP theft attempts and the rising popularity of RISC-V due to its open-source nature. Arm bulls anticipate market share gains in data centers and automotive segments, while bears note revenue concentration risks and potential IP theft attempts by Arm China.



Read more at Morningstar: Is Arm Stock a Buy After Earnings?