From Morningstar: 2025-05-08 08:39:00

ARM reported $0.55 adjusted EPS this quarter, meeting guidance but above FactSet consensus. Next-quarter guidance fell short at $1.0-$1.1 billion in revenue and $0.30-$0.38 in adjusted EPS, missing expectations of $1.09 billion and $0.42 per share. Shares dropped 10% in aftermarket trading due to weaker outlook and tariff uncertainty.

Despite the weaker guidance, management anticipates 10%-15% sequential revenue growth in the second half of the year, leading to around 20% revenue growth in fiscal 2026. Arm Holdings expects strong royalty revenue growth from higher royalty rates and market share gains. Smartphone, data center, and automotive revenue continued to grow at healthy rates.

Maintaining a $73 fair value estimate, Arm Holdings is seen as overvalued with an adjusted forward P/E ratio of 39 times. Revenue for v9, including Neoverse Compute Subsystems, increased to over 30% of royalty revenue. Arm added 13 access licenses in the year, with significant contributions from smartphone, data center, and automotive clients.

Arm’s exposure to tariffs is indirect, with 10%-20% of royalty revenue coming from the US. Any decline in shipments due to tariff uncertainty could impact royalty revenue. The author does not own shares in any mentioned securities.



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