Wall St futures flat amid US-China trade jitters; bank earnings in focus
On Thursday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Arm Holdings (NASDAQ:ARM), reducing the price target to $160 from the previous $180, while continuing to recommend the stock as Outperform. The decision follows Arm Holdings’ financial report for the March quarter, which aligned with expectations at $1.24 billion in revenue. However, the company’s guidance for the upcoming June quarter was slightly below consensus, at $1.05 billion in revenue and $0.34 earnings per share, compared to the anticipated $1.1 billion and $0.42 respectively. The lower earnings per share forecast was attributed to increased operational expenses. According to InvestingPro data, ARM maintains strong financial health with a current ratio of 4.96 and minimal debt, while delivering impressive revenue growth of 25.73% over the last twelve months.
Vijay Rakesh from Mizuho highlighted several key points in the analysis, including the penetration of Arm’s v9 architecture exceeding 30%, up from approximately 25% in the previous quarter. This increase is attributed to the adoption by several players, including Dimensity in mobile processors and various hyperscalers in their Axion, Cobalt, and GravitonV4 server processors, as well as Nvidia (NASDAQ:NVDA)’s Grace CPU initiative. Despite expectations for flat royalty revenue quarter-over-quarter in the smartphone segment, there is optimism for a stronger second half of the year, particularly in cloud services. InvestingPro analysis reveals the company’s strong market position, with a market capitalization of $130.9 billion and an impressive gross profit margin of 96.37%.
Arm Holdings also reported growth in its customer base, with 13 Customer Success Stories (CSS) clients, up one from the previous quarter, and a 7% quarter-over-quarter increase in Annual Contract Value (ACV) to $1.4 billion. However, licensing revenue is projected to decline in the June quarter. While the company did not provide a full-year outlook for fiscal 2026, it did mention potential tailwinds in the second half of the year due to v9 handset ramps, albeit with the caveat of growing operational expenditures due to investments in artificial intelligence.
The revised price target of $160 is based on a forecasted PEG (price/earnings to growth) ratio of 1.5 times for fiscal 2027, which represents a discount compared to the sector average of approximately 2.0 times. The previous estimate was around 2.1 times, compared to an earlier sector average of 2.6 times. Mizuho’s stance indicates a belief that Arm Holdings remains well-positioned to capitalize on the growth of data center and artificial intelligence technology despite the short-term challenges reflected in the updated guidance. InvestingPro subscribers can access 13 additional investment tips and a comprehensive analysis of ARM’s valuation metrics, which currently show the stock trading above its calculated Fair Value. The stock has demonstrated strong momentum with a 7.62% return over the past week.
In other recent news, Arm Holdings reported fiscal fourth-quarter results that exceeded expectations in terms of revenue, margins, and earnings per share, driven by record licensing and royalty revenues. For the upcoming quarter, Arm anticipates revenues of $1.05 billion, which is a 15% decrease from the previous quarter but a 12% increase year-over-year, though it falls short of the consensus estimate of $1.1 billion. The company forecasts earnings per share of $0.34, below the consensus estimate of $0.42, influenced by marginally lower revenues and increased operational spending. JPMorgan adjusted Arm Holdings’ price target to $150 from $175, maintaining an Overweight rating, while Morgan Stanley (NYSE:MS) also kept an Overweight rating with the same price target, highlighting robust royalties and higher-than-expected operating margins.
BofA Securities revised its price target for Arm Holdings to $135 from $144, maintaining a Buy rating, citing uncertainties related to global tariffs and deal closures. Barclays (LON:BARC) lowered its price target to $115 from $125, while keeping an Overweight rating, noting expectations of a seasonal decline in royalties. Despite these adjustments, analysts remain optimistic about Arm’s long-term growth potential, with a focus on the company’s advancements in AI and data center markets. William Blair reaffirmed its Outperform rating, emphasizing Arm’s strong performance in transitioning customers to new technologies and its growing presence in the data center market. These developments reflect the mixed sentiment among analysts regarding Arm Holdings’ near-term challenges and long-term opportunities.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.