Arm Holdings: A Golden Opportunity Despite Slipping Stock Price

Arm Holdings plc (NASDAQ: ARM) has been on a rollercoaster ride in recent months, with its share price taking a tumble despite reporting record revenue and strong demand for its AI-focused products. The company's stock has slipped by nearly 30% since its peak in March 2024, underperforming the broader market. However, this dip in share price may present a golden buying opportunity for investors, as Arm's fundamentals remain robust, and its growth prospects appear promising.

Arm's record-breaking revenue and strong AI demand
Arm Holdings reported record revenue of $983 million in its fiscal Q3 2025, marking a 19% year-over-year increase. This impressive growth was driven by a 23% jump in royalty revenue, primarily due to the adoption of its Armv9 architecture and increased usage of its chips in data centers and IoT devices. The company's license revenue also grew by 14% year-over-year, as it signed additional high-value license agreements during the quarter.



Arm's strong performance in the AI market
Arm's success in the AI market is a significant factor contributing to its growth. The company's Armv9 architecture, which is designed for AI workloads, has seen rapid adoption, with about 25% of Arm's royalty revenue now coming from Armv9-based devices. This growth in AI demand is expected to continue, as Arm's energy-efficient solutions cater to the increasing need for sustainable technologies in data centers and the automotive industry.



Arm's strategic partnerships and growth opportunities
Arm's strategic partnerships with leading cloud providers, automotive firms, and other industry leaders have further bolstered its market share. For instance, Arm collaborated with Meta to optimize the Llama 3.2 language model for Arm-based chips, improving processing times and user privacy. Additionally, Arm's Compute Subsystems (CSS) strategy enables faster time-to-market for partners in the smartphone and data center markets, reducing development time and costs.



Arm's valuation and future growth prospects
Despite the recent dip in its share price, Arm Holdings remains a fundamentally strong company with a rock-solid "A+" profitability grade. The company's forward adjusted P/E of 17.59 is more than 40% below its sector median, indicating that Arm is undervalued relative to its best-in-class growth potential. Opera's FY2024 guidance of $459.5M at the midpoint aligns with Wall Street's consensus estimates of $459.8M, representing a growth deceleration from FY23's reported revenue of $396.8M.

Is Arm Holdings stock a buy, sell, or hold?
Given Arm's robust fundamental metrics and cheap valuation relative to sector peers, investors may want to consider capitalizing on the current levels to buy more shares before Arm potentially revisits its March 2024 highs. However, investors should be aware of the potential risks, such as Opera's concentration risks as a browser company and the possibility of a deep cyclical downturn in the advertising market. As always, investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research, and always apply independent thinking.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking.