Arm’s 1.61% Rally Defies 238th Trading Volume Rank as AI Push and Earnings Beat Drive Strategic Shift

Market Snapshot

On November 10, 2025, Arm Holdings (ARM) closed at $152.31, reflecting a 1.61% increase from the previous day. Despite the price rise, the stock’s trading volume of 303,000 shares marked a 41.27% decline compared to the prior day’s activity, ranking it 238th in volume among U.S.-listed equities. The company’s shares traded within a daily range of $146.31 to $155.50, with a 95% gross margin and a market capitalization of $161 billion. The muted trading activity suggests limited investor participation, contrasting with the stock’s 3.76% intraday decline noted in news reports, which may reflect post-market volatility or delayed reporting.

Key Drivers

Earnings Beat and Optimistic Guidance

Arm reported a 34% year-over-year revenue increase to $1.14 billion for the second quarter of fiscal 2026, surpassing analyst estimates by $80 million. Adjusted earnings per share (EPS) rose 30% to $0.39, outpacing forecasts by $0.06. The company also provided guidance for the third quarter, projecting a 25% year-over-year revenue growth and a 5% rise in adjusted EPS. These results underscore robust demand for Arm’s AI-optimized Armv9 chip designs, which command higher royalty rates compared to non-AI offerings. The earnings beat, however, was overshadowed by the company’s strategic pivot toward manufacturing first-party chips, a move that could reshape its business model and investor expectations.

Strategic Shift to First-Party Chip Manufacturing

Arm’s decision to produce its own server-class AI accelerators marks a significant departure from its traditional licensing model, which generated high-margin revenues by outsourcing manufacturing to partners like Qualcomm and Apple. By entering the chipmaking space, Arm aims to reduce reliance on the maturing smartphone market and capture a larger share of the AI-driven data center sector. The company plans to collaborate with hyperscale cloud providers such as Meta, Amazon, and Microsoft to co-develop AI accelerators, either licensing the designs or selling finished chips manufactured by TSMC. While this strategy could lower production costs—since Arm avoids paying its own royalties—it also introduces risks of margin compression and competition with its licensees. Analysts note that the shift may temporarily slow earnings growth as resources are redirected to chip development and partnerships.

Market Reactions and Competitive Implications

Investors initially reacted negatively to the news, with shares falling 3.76% intraday before recovering to close higher. The move is seen as both a strategic necessity and a potential catalyst for long-term growth, particularly as Intel’s dominance in server CPUs faces challenges from Arm’s AI accelerators. The company’s expansion into data centers could disrupt Qualcomm and MediaTek, which are also targeting the server market, but Arm’s cost advantage—stemming from its lack of royalty obligations—positions it to compete aggressively. However, the transition may dilute Arm’s focus on its core licensing business, which remains its primary revenue driver. Analysts project revenue and EPS growth of 20% and 34%, respectively, through fiscal 2028, but the stock’s current valuation of 121 times next year’s earnings raises concerns about near-term upside potential.

Valuation and Long-Term Outlook

Despite the earnings beat and strategic clarity, Arm’s stock trades at a premium, with a price-to-sales ratio of 29 and a price-to-earnings multiple of 123. These metrics reflect investor optimism about its AI ambitions but also highlight vulnerability to market corrections. The company’s gross margin of 95% remains a strength, but analysts caution that margins may contract as it scales first-party chip production. Long-term growth hinges on the success of its data center partnerships and the ability to maintain royalty income from smartphone manufacturers. While Arm’s move into chipmaking is a calculated risk, it aligns with broader industry trends toward vertical integration and AI-driven innovation, positioning the company to benefit from the expanding semiconductor landscape.

This report synthesizes Arm’s recent performance and strategic shifts, emphasizing the interplay between earnings momentum, business model evolution, and market dynamics. The company’s ability to balance short-term challenges with long-term opportunities will be critical in sustaining its growth trajectory.