Arm Holdings (NASDAQ:ARM) delivered better-than-expected Q2 earnings. However, its Q3 sales outlook disappointed investors. This explains why shares of the chip design company are down about 6.8% in Wednesday’s after-hours of trading. Nonetheless, Mizuho Securities analyst Vijay Rakesh believes investors shouldn’t fret over the weaker-than-expected December quarter revenue guidance, as the full-year forecast remains strong, beating the consensus estimate.
It’s worth noting that Arm Holdings expects Q3 revenue to be between $720 and $800 million. The midpoint of which is $760 million, falling short of the analysts’ consensus estimate of $776 million. Further, the company projects its adjusted EPS to be in the range of $0.21 to $0.28. The midpoint of this outlook stands at $0.245, lower than the Street’s forecast of $0.27.
While Arm’s Q3 guidance disappointed, Rakesh noted that the company’s full-year revenue forecast of $3.02 billion (the midpoint of the outlook range of $2.96 to $3.08 billion) exceeded the consensus estimate of $2.96 billion. Further, this implies a sequential improvement of about 3% in the Q4 top line. The analyst reiterated the Buy rating and the price target of $62 for ARM stock on November 8. While the analyst is bullish about ARM stock, let’s briefly examine its Q2 performance.
Q2 Sales and Earnings Surpassed Estimates
Arm delivered total revenue of $806 million in Q2, up 28% year-over-year. Moreover, its second-quarter sales exceeded the analysts’ estimate of $740 million. The company said it delivered its highest-ever quarterly revenue in Q2 thanks to the several long-term license agreements it inked with prominent technology firms in the industry.
Also, ARM delivered adjusted earnings of $0.36 per share in Q2 compared to $0.17 in the prior-year period. Further, the EPS surpassed analysts’ estimates of $0.26.
With this backdrop, let’s look at the Street’s projection for ARM stock.
What is the Forecast for Arm Stock?
Arm’s diversified revenue and AI (Artificial Intelligence)-driven demand will support its financials in the coming quarters. However, lower sales of chips for smartphones could remain a drag. This is reflected in analysts’ cautiously optimistic outlook on ARM stock.
With 16 Buy, seven Hold, and one Sell recommendations, Arm stock has a Moderate Buy consensus rating. At the same time, the average ARM stock price target of $62 implies 13.97% upside potential from current levels.
