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Investing.com - Arm Holdings (NASDAQ:ARM) stock fell approximately 8% in after-hours trading following its latest quarterly earnings report, which met but did not exceed market expectations. The company, currently trading at a P/E ratio of 190x and showing strong revenue growth of 24% over the last twelve months, appears overvalued according to InvestingPro analysis.
The company delivered what Benchmark called "a very respectable quarter" – its second best ever – with solid growth across most major metrics. With an impressive gross profit margin of 97% and a healthy current ratio of 5.2, ARM maintains strong financial fundamentals. However, the report and outlook aligned with Street expectations without providing the upside investors had grown accustomed to since Arm’s 2023 public debut.
Benchmark analyst Cody Acree reiterated a Hold rating on Arm Holdings, noting that the company’s EPS guidance was light by $0.02 at the midpoint due to higher expected R&D spending. The in-line results appeared to stem from a softer-than-expected smartphone market and a 1% annual decline in licensing revenue, which fell 26% sequentially after a strong fourth quarter.
Foreign exchange impacts were cited as having approximately $0.01 impact each period this year, with revenue denominated in dollars while about two-thirds of expenses are based on the pound and euro.
Benchmark maintained its Hold rating, indicating investors "will once again need time to fully consider the details of this report, with the company’s shares likely lacking a material positive catalyst for at least the short-term."
In other recent news, Arm Holdings has seen several developments that may interest investors. The company’s fiscal first-quarter results were in line with expectations, although the outlook for the second quarter was slightly weaker than anticipated. Despite this, Arm’s royalty revenue grew by 25% year-over-year, largely due to strong performance in the data center sector. In response, Raymond (NSE:RYMD) James raised its price target for Arm Holdings to $165, maintaining an Outperform rating. Wells Fargo (NYSE:WFC) also increased its price target to $175, citing momentum in artificial intelligence data centers as a key factor for future royalty revenue growth. BNP Paribas (OTC:BNPQY) Exane upgraded Arm Holdings from Neutral to Outperform, nearly doubling its price target to $210, based on Arm’s potential in the ASIC chip market. Additionally, Goldman Sachs initiated coverage with a Neutral rating and a $160 price target, expecting Arm to maintain its strong position in the smartphone market while expanding in the data center segment. Mizuho (NYSE:MFG) raised its price target to $180, maintaining an Outperform rating, and kept its revenue and EPS estimates unchanged for the June quarter.
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