This Incredible Technology Stock Has Jumped 89% in 2024. Is It Still Worth Buying?

Arm Holdings (ARM) stock has been on a tear in 2024, surging nearly 90% year-to-date. The British semiconductor company's impressive performance can be attributed to a string of solid earnings reports and a robust revenue pipeline. But the question remains: is ARM still a worthy investment, or has the stock already priced in its growth potential?

ARM's strong performance is driven by several factors. The company's licensing revenue pipeline and remaining performance obligations (RPO) indicate solid long-term growth prospects. ARM's annualized contract value (ACV) for licenses increased 13% year over year in Q2 2024, reaching $1.25 billion, while RPO grew 10% to $2.38 billion. This suggests that ARM's licensing revenue and unfulfilled contracts are growing at a faster pace than its top line, pointing to stronger revenue growth in the future.

The adoption of ARM's latest Armv9 architecture has also contributed to the company's growth. This new architecture, introduced in 2021, offers improved performance and energy efficiency, making it increasingly popular among device manufacturers. As more chips are designed using Armv9, ARM collects royalties for each device shipped, leading to a 23% year-over-year increase in royalty revenue in the latest quarter. Furthermore, the higher royalty rate associated with Armv9 contributes to this growth, with smartphone royalty revenue surging 40% year-over-year despite only mid-single-digit shipment increases.

ARM's strategic focus on AI and its expanding global footprint also contribute to its competitive advantage. The company's AI Total Access license, which allows customers to use its IP for designing AI chips, has seen a surge in demand, with 39 licensees in Q2 2024, up from 22 in the same quarter last year. This growth is driven by increasing demand for AI workloads in data centers, smartphones, and personal computers. Additionally, ARM's royalty revenue from its latest Armv9 architecture has grown by 23% year-over-year, thanks to its higher royalty rate and increased adoption by customers like Apple, Nvidia, and Microsoft.

However, potential risks and challenges could impact ARM's future growth and stock performance. Increased competition in the AI chip market, slower-than-expected AI adoption, geopolitical tensions impacting global supply chains, and regulatory pressures on semiconductor industry consolidation are all factors that could pose challenges for ARM.

ARM's valuation, with a forward P/E of 28.6, is higher than the industry average of 22.5 and its peers like AMD (21.7) and Nvidia (30.4). However, its high growth potential, driven by AI demand and strong royalty revenue, justifies its premium. With a projected EPS growth of 25% in 2025, ARM remains an attractive investment opportunity.



In conclusion, ARM's impressive 89% stock rise in 2024 is driven by robust revenue growth and strong earnings, fueled by AI demand and royalty revenue from its latest Armv9 architecture. While potential risks and challenges exist, ARM's strong fundamentals and growth prospects make it an attractive investment opportunity. Investors should continue to monitor ARM's performance and remain vigilant to changes in the market landscape.