From Nasdaq:

Artificial intelligence (AI) is shaking up tech, and semiconductors play a key role. Nvidia and Advanced Micro Devices corner this market, but Arm Holdings has emerged as a contender, with Q3 earnings surpassing expectations. However, with a doubled market cap, Arm may be overvalued. Long-term prospects look good, but now might be risky.

Arm Holdings’ revenue of $824 million for Q3 exceeded estimates, increasing 14% YoY. Adjusted EPS of $0.29 also beat expectations. Q4 sales are forecasted at $850-900 million, well above analyst estimates. While Arm benefits from a booming semiconductor market, its stock has doubled, raising concerns about valuation and potential risks.

Arm’s market cap has more than doubled, with a P/S multiple of 40, in line with Nvidia’s. Management has delivered impressive results, but Arm’s valuation seems disconnected from its performance. Although Arm is a decent investment choice, its current valuation appears inflated due to market momentum.

Given the risks associated with Arm Holdings’ inflated valuation, investors should monitor the company’s performance over time. While the company could represent a solid long-term option in the semiconductor space, the current stock price seems overvalued and carries significant downside risk. For now, caution is advised.

The Motley Fool Stock Advisor team picked the 10 best stocks to buy now, and Arm Holdings wasn’t on the list. The service offers guidance on building a strong portfolio and regular updates, tripling the return of S&P 500 since 2002. This analysis does not necessarily reflect the views of Nasdaq, Inc.



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