ARM Stock Forecast & Price Target

Arm Holdings has demonstrated a robust financial performance, with royalty revenue increasing 21% year-over-year to $620 million, driven by higher shipments of Armv9 and CSS-based chips across various end markets including data centers, automotive, and IoT. License revenue surged 56% year-over-year to $515 million, reflecting the successful acquisition of high-value agreements, particularly in the smartphone segment where OEMs are rapidly adopting new architectures. The company's strong balance sheet, with cash and short-term investments rising to $3.26 billion, underscores its ability to invest in R&D for future growth while capitalizing on the growing demand for innovative chip designs and AI-related licensing.

The outlook for Arm Holdings's stock is negatively influenced by several fundamental factors, including anticipated lower licensing revenue in FQ4 due to the earlier-than-expected closing of large deals and a seasonal slowdown in royalty revenue. The mobile industry is experiencing stagnation, characterized by a mature customer base and extended product replacement cycles, which are impacting Arm's royalty revenue growth prospects, particularly outside the smartphone segment. Furthermore, uncertainties regarding Arm's ability to increase royalty rates and expand operating margins add significant risks to the company's revenue exposure, projected at nearly 25%.