From Morningstar: 2024-11-07 10:23:30

ARM Holdings reported strong fiscal second-quarter revenue of USD 844 million, exceeding its guided range of USD 780-830 million. However, investors were disappointed by the slightly weak revenue guidance of USD 920-970 million for the next quarter, leading to a decline in shares. Morningstar maintains a 1-star rating with a fair value estimate of USD 66.

Despite a positive outlook for Arm’s growth, shares are considered overvalued at 37 times the fiscal 2025 sales estimate of USD 4.05 billion. The market’s high expectations for Arm have led to share price declines whenever the firm exceeds estimates. Setbacks like customer adoption slowdowns or AI demand changes could significantly impact the shares.

Arm’s v9 architecture is gaining traction in the smartphone market, with royalty revenue growing by 40% despite a 4% increase in smartphone units. The company has also secured new licenses for compute subsystems, particularly for smartphone and automotive customers. Arm’s evolving business model aims to raise royalty rates gradually with new architecture versions.

Arm’s management remains vague about the pending litigation with Qualcomm, another major customer. Both firms are expected to start the trial in December, but a resolution is likely due to the mutually detrimental consequences of a cancellation. Qualcomm’s relationship with Arm as a customer adds complexity to the legal proceedings.



Read more at Morningstar: Arm Beats Earnings, Shares Still Overvalued