ARM Holdings: Sturdy Performance Amid Shifting Tides—Is This a Buy or a Sell?

ARM Holdings plc has long been the quiet powerhouse of the semiconductor industry, licensing chip designs that power everything from smartphones to servers. But in 2025, the company’s journey became anything but quiet. Despite hitting historic revenue milestones, ARM now faces a pivotal crossroads: Can its momentum in AI, edge computing, and server chips outweigh investor skepticism and market volatility? Let’s dive into the data to find out.

A Year of Records—And Record Pressure

ARM’s fiscal year 2025 (FYE25) was a triumph in many ways. Full-year revenue surged past $4 billion, with Q4 2025 revenue hitting a record $1.241 billion—a 14% year-over-year increase. Royalties, a critical metric for licensing firms, crossed $2 billion for the first time, fueled by the proliferation of Arm-based chips in smartphones, automotive systems, and data centers.

The crown jewel here is Compute Subsystems (CSS), a modular design that bundles CPUs, GPUs, and NPUs into a single package. ARM’s first CSS license for automotive—a deal with a major EV manufacturer—signals its expansion beyond traditional markets. Meanwhile, AI workloads are driving demand for power-efficient compute, with NVIDIA’s Grace Blackwell superchip (Armv9-based) now in full production and Google’s Arm-based Axion chip powering 40 of its top 100 clients.

But here’s the catch: despite beating EPS estimates by $0.02 (to $0.55), ARM’s shares plummeted 11% post-earnings. Why? The company narrowly missed quarterly revenue forecasts by just $3.1 million, sparking fears that the AI boom might not translate to consistent growth. Add in mixed institutional investor moves—UBS and Sustainable Growth Advisers piled in, while Bank of America and Renaissance exited—and the picture gets murkier.

The Elephant in the Server Room: Competition and Execution Risks

ARM’s biggest bet is its push into data centers. The company claims nearly 50% of server chips shipped to hyperscalers in 2025 will be Arm-based, with Google and Microsoft leading the charge. But this market is a battleground. Intel’s x86 architecture still dominates, and RISC-V—a free, open-source alternative—is gaining traction in niche markets.

Then there’s the question of execution. Scaling CSS production for automotive and AI applications requires flawless supply chain management and software ecosystem support. ARM’s Arm Kleidi toolchain has racked up 8 billion cumulative installs, but competitors like NVIDIA’s CUDA ecosystem remain entrenched.

Bullish on the Long Game, Cautious on the Near Term

Analysts are divided but leaning bullish. Barclays, Wells Fargo, and UBS have all issued “Buy/Overweight” ratings, citing ARM’s multi-year deal with Malaysia—a $1 billion AI ecosystem project—and its dominance in edge AI with the Cortex-A320 + Ethos-U85 platform. These moves could cement its position in emerging markets and industrial IoT.

Yet the market’s reaction to the Q4 miss suggests nerves. The 11% stock drop mirrors broader tech investor anxiety about valuation and macroeconomic risks. If ARM’s FYE26 guidance hints at slowing growth, or if hyperscalers backtrack on Arm-based server adoption, the correction could deepen.

Verdict: A Long-Term Play, but Proceed with Caution

ARM’s fundamentals are undeniable: it controls 95% of smartphone CPUs and is cracking open the data center market with AI as its Trojan horse. The Malaysia deal and automotive CSS partnerships underscore its global reach. But investors must weigh this against execution risks and volatile near-term expectations.

Key stats to watch:
- Server Chip Penetration: If ARM hits its 50% 2025 target, it’s a green light.
- R&D Investment: FYE25’s record spending ($600 million+ estimated) is a bet on long-term AI dominance.
- Competitor Moves: Intel’s new server chip roadmaps and RISC-V’s funding rounds could shift dynamics.

In conclusion, ARM is a buy for investors with a 3–5 year horizon, provided they can stomach short-term volatility. Its AI and edge-compute plays are too transformative to ignore, but the path to $5 billion annual revenue will be bumpy. For traders, the 11% drop presents an entry point—but only if ARM’s upcoming Q1 2026 results deliver the goods.

Stay vigilant, and keep an eye on those servers.