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On Thursday, Barclays (LON:BARC) analyst Tom O’Malley adjusted the price target for Arm Holdings (NASDAQ:ARM) to $115 from the previous $125, while maintaining an Overweight rating on the company’s shares. Currently trading at $124.19, ARM is showing signs of being overvalued according to InvestingPro analysis, despite its strong recent performance with a 7.62% gain over the past week. The revision comes amid expectations of a seasonal decline in royalties leading into June, followed by a flat performance into September, before anticipating a significant increase in the final two quarters of the fiscal year.
O’Malley noted that while the near-term softness in performance is not overly concerning, the combination of this with less financial disclosure and the absence of a comprehensive fiscal year guide is problematic. The company’s strong revenue growth of 25.73% and impressive gross profit margin of 96.37% suggest underlying strength, though the lack of detailed forecasts is understood in the context of current economic uncertainties. The last two quarters of fiscal year 2026 are now considered the most precarious in terms of sequential growth percentages.
Additionally, Arm Holdings reported higher than expected operational expenditure for June, attributed to expenses from March being deferred. This increase, along with low single-digit operational expenditure growth projected for the remainder of the fiscal year, could lead to lower operating profit margins.
Despite these concerns, there are positive developments for Arm Holdings. The company has successfully increased the mix of its v9 architecture products to over 30%, up from a consistent 25% in previous quarters. This growth, along with strong customer support services adoption and artificial intelligence engagements, is evidenced by a new agreement signed with Malaysia.
O’Malley concluded with a cautious tone, acknowledging the long-term potential of Arm Holdings but also highlighting the company’s high exposure to consumer markets, which makes it particularly susceptible to macroeconomic fluctuations. The company maintains strong financial health with a current ratio of 4.96 and operates with moderate debt levels. For deeper insights into ARM’s valuation and growth prospects, InvestingPro offers exclusive access to 13 additional ProTips and comprehensive financial analysis through its detailed Pro Research Report, available to subscribers.
In other recent news, Arm Holdings reported a robust 18% year-over-year increase in royalty revenue, driven by the adoption of its ARMv9 architecture, which now contributes to 30% of the revenue mix. Licensing revenue also rose by 53% year-over-year, although it fell slightly below internal projections. Despite these positive results, Arm Holdings has not provided full-year guidance due to uncertainties, particularly related to tariffs. Raymond (NSE:RYMD) James has adjusted Arm Holdings’ stock price target to $140, maintaining an Outperform rating, while HSBC lowered its target to $95, keeping a Reduce rating, citing potential fiscal challenges in 2026.
In a strategic move, Cadence Design (NASDAQ:CDNS) Systems announced plans to acquire Arm’s Artisan foundation IP business, which is expected to close in the third quarter of 2025, pending regulatory approval. Meanwhile, Citi reaffirmed its $200 price target for Arm Holdings, despite ongoing legal disputes with Qualcomm (NASDAQ:QCOM), which include allegations of anti-competitive behavior. The legal matter is set for mediation, with the potential for a settlement. Additionally, Arm is reportedly recruiting from its customer base as it considers selling its own chips, marking a shift in its traditional business model. This strategic change includes competing with major clients like Qualcomm for data center CPU deals with companies such as Meta Platforms (NASDAQ:META).
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