Shares of Arm Holdings plc ARM have declined 13% over the past year against the industry’s 36% growth. The decline raises a key question: will the fall continue, or is a rebound imminent? Let’s unpack the factors that you must look through before making an investment decision.
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ARM’s Dual-Sided Network Effect Reinforces Its Leadership
ARM’s competitive edge rests on a powerful dual-sided network effect that links software creators and hardware makers in a self-reinforcing loop.
The company’s architecture has become the default choice for device manufacturers because it already supports a massive universe of applications across Android, iOS, Windows and Linux ecosystems. This existing software breadth gives hardware producers confidence that chips based on ARM’s designs will integrate smoothly with global tools, platforms and services, making adoption a low-risk, high-benefit decision.
On the other side, developers are drawn to ARM because their applications immediately gain reach across an enormous installed base of devices. Every new hardware partner expands ARM’s footprint further, strengthening the incentive for developers to keep building for the platform. This creates a flywheel effect: more developers attract more manufacturers, which then bring in even more developers. Over time, this reinforcing cycle has grown into a deep moat that competitors struggle to penetrate.
This network-driven advantage has led to an extraordinary outcome. ARM effectively controls mobile CPU architecture. With its IP embedded in nearly every smartphone worldwide, the company operates from a position of unmatched scale, making its lead in mobile computing extremely difficult for rivals to challenge.
NVIDIA NVDA competes with ARM in edge computing and AI-driven device workloads. NVIDIA benefits from its own ecosystem, but lacks ARM’s mobile reach. Even where NVIDIA pushes into low-power processors, the breadth of ARM compatibility limits its ability to displace existing standards.
Qualcomm QCOM remains one of ARM’s most essential partners, yet also a peer, because Qualcomm builds mobile chips around ARM cores. The company depends heavily on ARM’s architecture, and its success in smartphones reinforces ARM’s position. Yet Qualcomm continues investing in custom designs to diversify, although ARM’s scale still keeps Qualcomm aligned with the platform.
Strong Earnings and Revenue Growth Ahead for ARM
The Zacks Consensus Estimate for ARM’s fiscal 2026 earnings is pegged at $1.72, indicating 5.5% growth from the year-ago level. Earnings for fiscal 2027 are expected to increase 28.2% from the prior-year actuals.
The company’s sales are expected to rise 23.5% and 21.6% year over year, respectively, in fiscal 2026 and 2027.
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ARM's Valuation Remains Significantly Elevated
ARM stock is currently expensive. It is priced at around 60 times forward 12-month earnings per share, significantly higher than the industry’s average of 37 times. When looking at the trailing 12-month EV-to-EBITDA ratio, ARM is trading at around 100 times, far exceeding the industry’s average of 25 times.
Hold Recommendation
Despite the recent decline, ARM’s shares still reflect elevated expectations due to the company’s dominant market position and long-term growth narrative. The pullback improves risk-reward but does not yet fully offset valuation concerns, especially in a volatile market environment. ARM’s strong ecosystem, recurring royalty model and exposure to AI-driven demand support the long-term story, but near-term upside may remain capped. Investors already holding the stock can stay patient, while new investors may prefer a wait-and-watch approach, looking for clearer signs of sustained earnings acceleration or a more attractive entry point.
ARM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
