Goldman Sachs analyst Toshiya Hari reiterated a Buy rating on Arm Holdings
Arm reported fiscal first quarter 2025 revenue of $939 million (+39% year-on-year), 2% and 4% above Goldman Sachs estimate and Street (FactSet), respectively. Adjusted EPS of $0.40 was 10% above Goldman Sachs estimate and 16% above the Street.
Arm guided second-quarter revenue to $805 million at the mid-point (flat Y/Y), 4% below Goldman Sachs estimate and in line with the Street. In contrast, adjusted EPS was guided to $0.25, 12% below Goldman Sachs estimate and 7% below Street consensus.
Hari continues to view Arm as a share gainer across a wide range of end markets and for its potential to increase royalty rates through sustained innovation.
Needham analyst Charles Shi maintained a Hold rating on Arm Holdings. Arm reported fiscal first quarter 2025 results that exceeded the high end of the guidance and guided the second quarter slightly above consensus. For the first time, however, the company did not raise its outlook, Shi flagged. As per the analyst, the lack of upside could be seen as a negative for the stock that trades at a sky-high valuation.
While royalty revenue will likely grow in the low-20s % Y/Y, licensing revenue shows signs of a slowdown, as RPO declined for the first time since IPO and the implied book-to-bill ratio fell to 0.3x, Shi said. While Arm is a solid business with excellent growth potential, the analyst remains on the sidelines based on valuation.
Arm emerged with the foundry/fabless ecosystem to command an overwhelming share of the smartphone processor market. Shi noted the company's firm control over the smartphone ecosystem and consequent pricing power can support growth. Still, it will face challenges when replicating its success in other technology sectors, notably IoT and high-performance computing.
As per the analyst's estimate, IoT chips that account for 70-80% of Arm's volume generate less than 10% of its royalty revenue. In high-performance computing, Arm does not have anywhere near the level of ecosystem control it enjoys in smartphones.
At the same time, the continuous improvement of x86 and the emergence of RISC-V threaten Arm's growth in non-smartphone CPUs. Shi noted Arm can still grow its overall business by capturing more excellent value from smartphones, but it is still being determined how it will replicate its success elsewhere.
Shi projected second-quarter revenue and EPS of $805 million (prior $780 million) and $0.25 (prior $0.31).
JP Morgan analyst Harlan Sur remained Overweight on Arm Holdings with a price target of $140, up from $115. Sur noted that Arm delivered solid first-quarter results on the licensing upside, guided for an in-line second-quarter revenue outlook, and maintained its prior fiscal 2025 outlook.
Looking ahead, the team is confident in driving a sustained 20%+ Y/Y revenue growth profile in fiscals 2026 and 2027 driven by higher levels of licensing activity, continued penetration of the Arm architecture into data center applications, the continued royalty step up and the deployment of its total compute solutions platforms (TCS), the analyst added.
Sur added that Arm is well-positioned to drive a 20%+ revenue CAGR (40%+ EPS CAGR) for the next several years on higher IP content (driving higher royalty rates), market share gains against proprietary/legacy compute architectures, and ARM's growing market penetration into the highest growth segments of the market like AI, auto, and datacenter computing.
Arm trades at ~55x P/E multiple, which is a 50% premium to the average Electronic Design Automation (EDA) peer, which Sur noted as justified by its 50% faster revenue growth profile (and 100% faster EPS growth profile) vs peers.
Price Action: ARM shares traded lower by 15.7% at $121.41 at last check Thursday.
