Arm Holdings ARM
What does Arm Holdings do?
Arm Holdings develops and licenses processor architectures and related intellectual property, mainly for CPUs but also for graphics and AI accelerators (GPU, NPU) and system building blocks such as interconnects. The offering is complemented by pre-integrated compute subsystems, development tools and software. Arm does not manufacture chips itself but provides designs and instruction set architectures on which other companies develop their products.
Revenue arises from license fees for access to technology as well as from royalties incurred on every produced chip using Arm technology. Customers are semiconductor makers, device manufacturers and cloud providers, who use chips for smartphones, consumer electronics, industrial and IoT applications, data centers, networking, automotive and robotics. In competition, Arm benefits from a widely adopted software ecosystem and the high energy efficiency of its architecture. Competition comes from the x86 architecture of established providers, from the open RISC-V architecture and from in-house developments by large customers.
Score profile
Rank vs. Semiconductors (40 companies). 10 = top of the group, 5 = middle. Calculated from the metrics below, without AI.
Metrics compared with the industry
On profitability and quality, Arm Holdings ranks above average in the group Semiconductors (6.6/10). On growth, the company ranks below average in the group Semiconductors (2.8/10). On valuation (higher = cheaper), the stock ranks in the bottom fifth in the group Semiconductors (1.5/10). On financial strength, Arm Holdings ranks above average in the group Semiconductors (6.4/10).
| Metric | Stock | Group median | Ranking |
|---|---|---|---|
| Forward P/E | 59.0x | 18.7x | better than 9 % |
| Trailing P/E | 208.6x | 42.4x | better than 9 % |
| PEG ratio | 1.4x | 0.8x | better than 29 % |
| Price/sales | 35.5x | 5.8x | better than 6 % |
| Price/book | 21.4x | 5.1x | better than 1 % |
| Revenue growth | 27.1% | 25.5% | better than 51 % |
| Earnings growth | -45.5% | 7.4% | better than 4 % |
| Gross margin | 97.4% | 53.3% | better than 99 % |
| Operating margin | 13.9% | 15.5% | better than 41 % |
| Net margin | 17.1% | 10.3% | better than 69 % |
| Return on equity | 11.4% | 8.6% | better than 54 % |
| Debt/equity | 5.5% | 36.5% | better than 79 % |
| Current ratio | 6.4x | 3.3x | better than 84 % |
| Free cash flow yield | 0.6% | 1.3% | better than 29 % |
| Dividend yield | 0.0% | 1.2% | – |
| Payout ratio | 0.0% | 38.0% | – |
| Beta | 3.94 | 1.92 | – |
Valuation: what is Arm Holdings worth?
For Arm Holdings the data currently does not allow a reliable model range (e.g. negative free cash flow or missing comparables). In this case the Pro analysis assesses the valuation qualitatively.
40 analysts, average rating “Buy”, average price target 273.40 USD (+50.6%).
The full DCF matrix, the reverse DCF (what growth the price implies) and scenarios are part of the Pro analysis.
What the business depends on
- The number of shipped chips with Arm technology determines royalty revenue and thus the recurring core of the business.
- The move to newer architecture generations and more complex designs typically increases the royalty rate per chip.
- Growing demand for energy-efficient computing power in data centers, AI applications and automotive electronics widens the architecture's fields of use.
Risks
- Demand depends on the cycle of the smartphone and electronics markets, where chip volumes can fluctuate strongly.
- Open alternatives such as RISC-V and in-house developments by large customers may put pressure on license negotiations and market share.
- Geopolitical tensions, export restrictions and dependence on a few large customers may impair revenue and predictability.
What to look for with Arm Holdings
Royalty revenue relative to total revenue is informative, as it separates the recurring earnings base, linked to chip volume and technology generation, from one-off license revenue.