Arm Earnings: Shares Fall as 2025 Guidance Disappoints Investors

Key Morningstar Metrics for Arm Holdings

• Fair Value Estimate: $57.00
• Morningstar Rating: 1 star
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Arm’s Earnings

Wide-moat Arm Holdings’ ARM fourth-quarter results came ahead of FactSet consensus, with $928 million in revenue and $0.36 in adjusted EPS compared with $875 million and $0.30 estimates. However, despite management projecting 22% growth in revenue and adjusted EPS for 2025, the stock took a 9% hit in aftermarket trading as the outlook did not impress investors.

At the midpoint of guidance, management expects $3.95 billion in revenue and $1.55 in adjusted EPS in 2025, fairly aligned with our estimates. We believe investors were expecting a stronger 2025 outlook given the high expectations baked into Arm after its 70% share price run since its IPO and its narrative as an AI beneficiary.

We are maintaining our $57 fair value estimate and see Arm shares as overvalued and leaving little margin for error. Although shares have declined by 35% since their $150 peak in February, Arm still trades at a 40% premium compared with its peers Synopsys and Cadence on a forward price earnings basis.

Arm Keeps Gaining Market Share

Arm v9 keeps growing and represented 20% of royalty revenue compared with 15% last quarter. At this pace, which management expects to maintain, v9 would represent around 60% to 70% of revenue in two-to-three years, resulting in higher blended royalty rates. Management also provided a ballpark guidance for 2026 and 2027, where it expects revenue to keep growing at around 20% annually given the pipeline of new licenses and chips under development. Management remains confident in its outlook given it typically takes two-to-three years to convert licensing revenue into royalties.

By market, cloud and automotive remain the bright spots as Arm keeps gaining share thanks to its energy efficiency. High-end smartphones lead the way in the adoption of v9, but the market is still recovering. The Internet of Things market is the main laggard, as industrial customers are going through an inventory correction.

For next fiscal year 2025, we expect Arm will come at the high-end part of its $3.8 to $4.1 billion in revenue given management has remained conservative with guidance in its first three quarters as a public company and prefers to leave room for earnings surprises. 80% of the $3.95 billion of midpoint guidance for 2025 is already in the firm’s backlog, giving certainty on the next year’s forecast.

Arm’s free float remains very low at around 10%, so we expect volatility in the shares to continue.