ARM Holdings PLC ADR (ARM) AI Stock Analysis

• Market Cap: $109.61B
• Dividend Yield: N/A
• Average Volume (3M): 5.82M
• Price to Earnings (P/E): 137.2
• Beta (1Y): 3.17
• Revenue Growth: 25.73%
• EPS Growth: 865.12%
• Country: US
• Employees: 7,096
• Sector: Technology
• Sector Strength: 51
• Industry: Semiconductors
• EPS (TTM): 0.76
• Shares Outstanding: 1,051,000,000
• 10 Day Avg. Volume: 7,837,043
• 30 Day Avg. Volume: 5,823,203
• PEG Ratio: 0.16
• Price to Book (P/B): N/A
• Price to Sales (P/S): 77.28
• Price to Cash Flow (P/CF): N/A
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $177.68
• Price Target Upside: 70.86% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 22

ARM Holdings PLC ADR demonstrates strong financial performance and promising growth, particularly in AI and data centers, as highlighted in the earnings call. However, the high P/E ratio suggests overvaluation, and technical indicators reveal a bearish trend, which could pose risks. The company needs to address rising operating costs and improve ROE to sustain its growth trajectory.

Positive Factors

Financial Performance

ARM reported a better than expected quarter, with revenue and EPS exceeding estimates and consensus.

Market Adoption

The growth in royalties is being driven by v9 adoption which attracts higher royalty rates.

Negative Factors

Operating Expenses

Operating expenses are expected to remain elevated due to increased R&D, leading to lower earnings projections.

Royalty Performance

Royalties have underperformed expectations in FY25 due to factors like the inventory correction and slowdown in the networking and IoT segments.

Valuation Concerns

Arm is now trading at 79x 2-Y forward PE, with an enormous premium to the SOX, NASDAQ, and comparables.

ARM Holdings PLC ADR Business Overview & Revenue Model

Company Description

Arm Holdings plc architects, develops, and licenses central processing unit products and related technologies for semiconductor companies and original equipment manufacturers rely on to develop products. It offers microprocessors, systems intellectual property (IPs), graphics processing units, physical IP and associated systems IPs, software, tools, and other related services. Its products are used in various markets, such as automotive, computing infrastructure, consumer technologies, and Internet of things. The company operates in the United States, the People's Republic of China, Taiwan, South Korea, and internationally. The company was founded in 1990 and is headquartered in Cambridge, the United Kingdom. Arm Holdings plc operates as a subsidiary of Kronos II LLC.

How the Company Makes Money

ARM Holdings makes money primarily through licensing its intellectual property to semiconductor companies and device manufacturers. The company's revenue model is based on licensing fees and royalties. When companies use ARM's architecture to design their chips, they pay an initial license fee, followed by ongoing royalties based on the number of chips produced or sold. ARM's key revenue streams include the mobile and computing markets, where its technology is integral to the function of smartphones, tablets, and increasingly, laptops. Additionally, ARM has significant partnerships with major technology companies and silicon manufacturers, which contribute to its earnings through collaborative design and innovation projects. The company's strategic focus on expanding its presence in the IoT and automotive sectors is also a growing source of revenue.

ARM Holdings PLC ADR Financial Statement Overview

Summary

ARM Holdings PLC ADR is in a strong financial position with impressive profitability and efficient operations, bolstered by a solid balance sheet. While cash flow metrics are strong, the decline in free cash flow growth rate indicates potential areas for enhancement. The company is well-positioned in the semiconductors industry but should focus on improving its ROE and managing operational costs to maintain its growth trajectory.

Income Statement

ARM Holdings PLC ADR demonstrates robust financial performance with a TTM gross profit margin of 94.69% and net profit margin of 21.82%, indicating strong profitability. The revenue growth rate from the previous annual period to TTM is 14.25%, showcasing healthy growth. Both EBIT and EBITDA margins are solid, at 11.99% and 16.65% respectively, reflecting operational efficiency. However, a decline in EBIT margin from the earlier periods suggests rising operational costs or competitive pressures.

Balance Sheet

The balance sheet reflects a strong financial position with a low debt-to-equity ratio of 0.04, indicating minimal leverage. The equity ratio is high at 75.55%, highlighting financial stability. Return on Equity (ROE) is 12.56%, which is decent but has room for improvement. The company benefits from solid equity backing but should aim to enhance ROE to maximize shareholder value.

Cash Flow

The cash flow analysis shows a stable cash generation with a TTM free cash flow of $626 million. The operating cash flow to net income ratio is 1.00, demonstrating effective conversion of income to cash. The free cash flow to net income ratio stands at 0.78, indicating a significant portion of net income is translated into free cash flow. However, the free cash flow growth rate compared to the previous period is -33.90%, suggesting a need for improvement.

Breakdown
TTM	Mar 2024	Mar 2023	Mar 2022	Mar 2021
Income Statement		Total Revenue
3.69B	3.23B	2.68B	2.70B	2.03B
	Gross Profit
3.50B	3.00B	2.57B	2.57B	1.88B
	EBIT
443.00M	111.00M	671.00M	633.00M	239.00M
	EBITDA
615.00M	279.00M	855.00M	865.00M	443.00M
	Net Income Common Stockholders
806.00M	306.00M	524.00M	549.00M	388.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
2.67B	2.92B	2.21B	1.64B	0.00
	Total Assets
8.50B	7.93B	6.87B	6.51B	0.00
	Total Debt
271.00M	226.00M	219.00M	261.00M	0.00
	Net Debt
-1.76B	-1.70B	-1.33B	-743.00M	0.00
	Total Liabilities
2.08B	2.63B	2.81B	2.96B	0.00
	Stockholders Equity
6.42B	5.29B	4.05B	3.55B	0.00
Cash Flow		Free Cash Flow
626.00M	947.00M	646.00M	383.00M	1.07B
	Operating Cash Flow
806.00M	1.09B	739.00M	458.00M	1.23B
	Investing Cash Flow
-17.00M	-516.00M	-138.00M	-619.00M	-340.00M
	Financing Cash Flow
-296.00M	-208.00M	-42.00M	-32.00M	-789.00M

ARM Holdings PLC ADR Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 103.99
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARM, the sentiment is Negative. The current price of 103.99 is below the 20-day moving average (MA) of 108.72, below the 50-day MA of 128.49, and below the 200-day MA of 139.33, indicating a bearish trend. The MACD of -7.14 indicates Positive momentum. The RSI at 33.73 is Neutral, neither overbought nor oversold. The STOCH value of 16.61 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ARM.

ARM Holdings PLC ADR Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
TSM	80 Outperform	$714.08B	22.30	29.96%	1.23%	29.98%	35.76%
QCOM	75 Outperform	$154.01B	14.88	41.96%	2.44%	12.13%	36.17%
ARM	74 Outperform	$109.61B	137.21	14.11%	―	25.73%	865.12%
AMD	73 Outperform	$151.74B	93.10	2.89%	―	13.69%	91.75%
ADI	70 Outperform	$88.46B	56.88	4.43%	2.09%	-19.28%	-44.00%
Sector *	57 Neutral	$19.95B	9.66	-12.05%	2.76%	5.40%	-24.89%
INTC	50 Neutral	$86.08B	―	-18.31%	2.53%	-2.08%	-1212.72%