Key Takeaways
- Arm stock fell 10% in a week in a chip selloff that hit Nvidia and Micron even harder.
- Pricier memory stalled Arm’s phone royalties, but its data center royalties doubled.
- SoftBank owns most of Arm and has pledged 72% of it behind a loan.
- Arm trades below its average forward P/E, which makes a small starting position reasonable.
Arm Holdings (ARM) stock is down 10% in the past week, mostly on a chip selloff that hit Nvidia (NVDA) and Micron Technology (MU) even harder. Arm has two problems of its own: phone royalties have stalled, and its parent, SoftBank Group (SFTBY), posted a $7.1 billion quarterly loss.
The midterms hit every chip stock
Chip stocks sold off after the Democratic sweep in the Nov. 3 midterms, on fears of new limits on data center building. On Nov. 5, the day after Arm reported, its 13% drop was only a little worse than the PHLX Semiconductor Index’s 12.3% fall. Over the week, Micron is down 15% and Nvidia is down 18%, with Nvidia also hit after its board opened an investigation into reports about CEO Jensen Huang.
Phones stalled, servers didn’t
Arm’s September quarter brought just 8% royalty growth, to $670 million, because pricier memory cut into phone sales, and Arm expects low-single-digit royalty growth in the December quarter. Data center royalties doubled, helped by ramps that Arm says include Nvidia’s platforms. Nvidia’s Arm-based Vera CPU is in full production, with OpenAI among its first customers.
Going into the report, analysts expected Arm’s normalized EPS to climb from $1.77 in fiscal 2026 to $3.08 in fiscal 2028:
The phone slowdown could trim fiscal 2027, but a data center business that keeps doubling should hold up the years after it.
TIKR tracks 43 analysts on Arm Holdings. How many say “Buy”?
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SoftBank is the other overhang
SoftBank lost $7.1 billion in the quarter ended Sept. 30. It owns 86.4% of Arm, has pledged 72% of the company behind a margin loan, and through an affiliate supplied 14% of Arm’s fiscal 2026 revenue. Bank of America analyst Vivek Arya warned that “Arm’s increasing dependence on SoftBank for Licensing revenue could pose circular financing concerns.” That worry eased somewhat: revenue from related parties, a group that includes SoftBank, held flat at $424 million, while revenue from outside customers jumped 43% to $1.02 billion.
Cheaper than its average, for a reason
The selloff has pulled Arm’s forward P/E to 72x, below its three-year average of 85x and far from June’s 201x:
Wall Street’s average price target of $273 sits about 50% above the Nov. 10 close of $181.49, even after nine firms cut their targets following the report:
A small starting position at this price looks reasonable, with room to add if February’s report shows phone royalties have bottomed. Still, SoftBank’s debt can push Arm’s stock around no matter what the business does.
So what is Arm stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
