Key Stats for ARM Stock
- Past week’s performance: consolidating
- 52-week range: $63 to $160
- Valuation model target price: $203
- Implied upside: 62% over 2.1 years
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What Happened?
Shares of Arm Holdings (ARM) fell about 4% over the past week, with the stock trading near $125 after a volatile post-earnings reaction.
The move followed Arm’s fiscal Q3 earnings report on February 4, where the company reported adjusted EPS of $0.43, beating consensus estimates by 5%. Revenue came in at $1.24 billion, modestly ahead of expectations and up 26% year over year.
Despite the earnings beat, the stock moved lower because licensing revenue missed estimates, which pressured sentiment given Arm’s premium valuation. Investors appeared focused on the timing of large licensing deals rather than long-term demand trends.
During the week, Reuters also reported continued weakness in smartphone chip demand, particularly tied to memory shortages affecting customers like Qualcomm. This weighed on near-term expectations for Arm’s mobile exposure.
At the same time, Arm reiterated its midpoint Q4 adjusted EPS outlook of $0.58, which aligned with estimates but did not materially reset expectations. With the stock still trading at elevated multiples, the lack of upside surprise kept pressure on shares.
Overall, the pullback reflects valuation sensitivity and short-term licensing volatility rather than a deterioration in Arm’s long-term growth drivers.
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Is ARM Stock Undervalued?
Under valuation model assumptions realized through 3/31/28, the stock is modeled using:
- Revenue growth (CAGR): 20.9%
- Operating margins: 45.9%
- Exit P/E multiple: 63.8x
Based on these inputs, the model estimates a target price of $203, implying 62% total upside from the current share price and a 25.6% annualized return over the next 2.1 years.
Execution remains the key driver behind these assumptions, especially the adoption of Arm-based architectures in data centers and AI workloads.
Revenue growth has accelerated, with trailing twelve-month revenue reaching $4.7 billion, up 24% year over year. Gross margins remain near 97%, reflecting the company’s high-margin licensing model.
Operating income rebounded sharply over the past year, supported by higher royalty revenue and improved cost discipline. However, free cash flow declined last quarter due to higher capital expenditures and working capital changes.
Looking into 2026, analysts expect revenue growth to remain above 20%, supported by AI-driven compute demand, automotive design wins, and broader Arm adoption across hyperscale customers.
While near-term results can be uneven due to licensing timing, Arm’s financial profile continues to reflect strong growth, high margins, and long-term relevance across the semiconductor ecosystem.
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