Is Arm's gross profit margin sustainable long-term?

**Arm's gross profit margin appears to be sustainable long-term**, based on the following points:

1. **High Gross Margin**: Arm Holdings has demonstrated an exceptional gross profit margin of 96.64% as of December 31, 2024. This is significantly higher than the gross profit margins of its peers, indicating a strong profitability model.

|code|Ticker|Name|Date|Gross Profit Margin|Gross Profit Margin YoY|market_code|
|---|---|---|---|---|---|---|
|ARM|ARM.O|Arm Holdings|2024 Q4|95.2366|-0.8399336549244001|185|
|ARM|ARM.O|Arm Holdings|2025 Q1|96.4856|1.1301010194177912|185|
|ARM|ARM.O|Arm Holdings|2025 Q2|96.3545|1.638910220166925|185|
|ARM|ARM.O|Arm Holdings|2025 Q3|96.6377|1.6194940776633642|185|

2. **Business Model and Market Position**: The company's high gross margin can be attributed to its IP-licensing business model and royalty-based revenues. Arm's dominance in the mobile market with a 99% share and its growing presence in other sectors like AI, automotive, and data centers suggest a strategic positioning that supports long-term profitability.
3. **Financial Health and Growth**: Despite the legal challenges from Qualcomm, Arm Holdings has maintained a robust financial health with a current ratio of 4.96 and a "GOOD" financial health rating from InvestingPro. The company has also shown strong revenue growth with a 25.73% increase and a record-breaking March in licensing.
4. **Analyst Confidence**: Multiple analysts have maintained positive ratings and high price targets for Arm Holdings, reflecting confidence in the company's long-term growth and profitability. The expected growth in intellectual property content and higher royalty rates supports the sustainability of gross margins.
5. **Strategic Adaptation**: Arm's adaptation to market needs by acquiring more intellectual property and focusing on expedited delivery suggests a proactive approach to maintaining its competitive edge and profitability.

In conclusion, Arm's high gross profit margin, combined with its strategic business model, financial health, analyst confidence, and ability to adapt to market changes, supports the notion that its gross margin is sustainable in the long term.