Arm Holdings plc ARM will report its first-quarter fiscal 2025 results on Jul 31, after the bell.
The Zacks Consensus Estimate for earnings in the to-be-reported quarter stands at 35 cents. The consensus mark for revenues is pegged at $920 million.
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One estimate for the to-be-reported quarter moved north over the past 30 days versus no southward revision. Over the same period, the Zacks Consensus Estimate for the quarter’s earnings has increased by a penny.
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What Our Model Says
Our proven model doesn’t conclusively predict an earnings beat for ARM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
ARM has an Earnings ESP of +5.71% and a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
ARM leverages AI to develop sophisticated chip designs and software tools, which are utilized in smartphones, automobiles, and data centers. Major semiconductor manufacturers like Apple AAPL, Nvidia NVIDIA NVDA, and Qualcomm QCOM rely on ARM’s chip designs. We expect continued top-line strength in the to-be-reported quarter, driven by both Royalty and License revenues. The company has expected revenues between $875 million and $925 million, indicating 30 to 37% year-over-year growth.
ARM had forecasted 20% year-over-year growth in Royalty revenues for the quarter, anticipating a higher adoption of Armv9, which typically commands double the royalty rates compared to Armv8 products. Royalty revenues have been boosted by the resurgence of the smartphone market and increased market share outside mobile. Additionally, the company anticipated a slight uptick in Licensing revenues sequentially, driven by some revenues from the backlog.
Price Dynamics
ARM has rallied a massive 107% over the past six months and 47.2% over the past three months while plummeting 6.2% in the past month. The stock has declined 10% in the past five days. These price dynamics suggest that the stock has just entered a correction phase.
Six-Month Price Performance
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Investment Considerations
ARM’s revenue growth has been modest over the past few years. However, this trend may shift in the future due to the current environment where AI hype is a significant driver of sales for any company involved in the technology, and ARM Holdings is no exception.
For relatively new public companies like ARM, margins are often squeezed initially. Despite the company's excellent gross margins, this hasn't yet translated into strong operating margins, which contracted significantly from over 26% to just under 3% compared to the previous year. The increased costs in the R&D segment could be beneficial in the long term, suggesting potential for future growth and innovation.
Time to Book Profits
We believe that at this moment, investors must approach with caution due to potential risks, including a weak operating performance and increased costs. Although a robust position in the AI hardware market and strategic advancements in chip design suggest long-term growth potential for ARM, timing the market is crucial for maximizing investment returns.
The recently started correction phase offers a strategic exit point for investors who have gained substantial profits from the stock.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
