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On Thursday, KeyBanc Capital Markets adjusted its outlook on ARM Holdings (NASDAQ:ARM) by reducing the stock’s price target to $175 from the previous $195, while still maintaining an Overweight rating on the stock. With a current market capitalization of $130.9 billion and trading at a P/E ratio of 160.2x, InvestingPro analysis suggests the stock is currently trading above its Fair Value. Despite this, ARM has shown strong momentum with a 7.62% return over the past week. The adjustment comes in light of ARM’s fourth fiscal quarter results for March, which showcased strong royalty revenues but presented a guidance for the first fiscal quarter of June that did not meet market expectations.
ARM Holdings reported significant growth in its mobile division, with a 30% year-over-year increase. This growth outpaced the general smartphone unit growth, which stood at 1.5%. According to InvestingPro data, the company’s overall revenue growth reached 25.73% in the last twelve months, supported by an impressive gross profit margin of 96.37%. With 13 exclusive ProTips available on InvestingPro, investors can gain deeper insights into ARM’s financial health and growth prospects. The company’s success was partly attributed to the higher attach rates of its Armv9 architecture, which rose to over 30% from the previous rate of 25%. Additionally, the increased adoption of ARM’s Cortex System-on-a-Chip (CSS) solutions contributed to the positive performance.
Despite these strong results, ARM Holdings has decided not to provide guidance for the full fiscal year of 2026 ending in March, citing the potential impacts of indirect tariffs. However, the company maintains a strong financial position with a current ratio of 4.96 and operates with minimal debt, as evidenced by a debt-to-equity ratio of just 0.04. For a comprehensive analysis of ARM’s financial health and future prospects, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 top US stocks. The lack of a tariff deal could pose challenges, especially as 10-20% of ARM’s royalties are derived from shipments into the U.S. Market segments such as smartphones, consumer electronics, networking, and the Internet of Things (IoT) might face headwinds if the tariff situation remains unresolved.
KeyBanc analyst John Vinh commented on the situation, explaining the rationale behind the revised price target. "Upside in F4Q royalties was due to Mobile, which grew 30% y/y (vs. smartphone unit growth of +1.5%) given higher attach rates of Armv9, which increased to 30%+ vs. 25% prior and given higher adoption of CSS," Vinh noted. He also acknowledged the potential difficulties ahead, stating, "Noting 10-20% of royalties are derived from shipments into the U.S., there are likely headwinds across consumer exposed end-markets incl smartphones, CE, networking, and IoT if there is not a tariff deal."
In light of these factors, KeyBanc has revised its estimates for ARM Holdings, aligning the price target with the anticipated challenges. Despite the reduction, the firm’s Overweight rating indicates a continued positive outlook on ARM’s stock, with expectations of royalty growth exceeding 20% in FY26.
In other recent news, Arm Holdings reported financial results for the March quarter, aligning with expectations at $1.24 billion in revenue. However, guidance for the upcoming June quarter was slightly below consensus, with anticipated revenue of $1.05 billion and earnings per share of $0.34. This forecast is influenced by increased operational expenses. Mizuho (NYSE:MFG) Securities, JPMorgan, and BofA Securities have all revised their price targets for Arm Holdings, reflecting these developments. Mizuho reduced its target to $160, maintaining an Outperform rating, while JPMorgan adjusted its target to $150, keeping an Overweight rating. BofA Securities lowered its target to $135 but continued to recommend a Buy rating. Morgan Stanley (NYSE:MS) maintained its price target of $150, highlighting robust royalties and higher-than-expected operating margins. Analysts noted Arm Holdings’ strategic investments in AI and data centers, which are expected to drive future growth despite short-term challenges.
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