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Thursday, Arm Holdings stock (NASDAQ:ARM), currently valued at $131 billion, maintained its Overweight rating and a $150.00 price target from Morgan Stanley (NYSE:MS), following the company’s quarterly financial results. According to InvestingPro analysis, ARM is currently trading above its Fair Value, with a remarkable gross profit margin of 96%. The firm’s analysis highlighted Arm Holdings’ robust royalties and a higher-than-anticipated adjusted operating margin for the fourth quarter.
Arm Holdings reported fourth-quarter sales of $1.24 billion, aligning with projections, bolstered by royalty revenues of $607 million, exceeding the anticipated $575 million. The company’s strong performance is reflected in its 25.7% year-over-year revenue growth and "GOOD" overall financial health score from InvestingPro. Licensing revenue, while strong, fell short of expectations at $634 million, a roughly 53% year-over-year increase, against a consensus of $664 billion. The adjusted operating profit reached $655 million, translating to a 52.8% margin, surpassing the roughly 50% consensus. Earnings per share (EPS) were 55 cents, beating the consensus estimate of 53 cents.
Despite the positive performance in the fourth quarter and a strong 7.6% stock return over the past week, Arm Holdings provided guidance for the first quarter that matched expectations on sales but indicated weaker earnings. The company forecasts first-quarter sales between $1.0 billion and $1.1 billion, in line with the consensus of $1.08 billion. However, the earnings guidance of 30 to 38 cents per share falls below the consensus estimate of 42 cents, attributed to a significant increase in operating expenses, projected at around $625 million. With a current P/E ratio of 160, investors seeking deeper insights can access 13 additional ProTips and comprehensive valuation metrics through InvestingPro’s detailed research reports.
Morgan Stanley’s commentary suggests that while a dip in margins is anticipated for the first quarter, it reflects strategic investments by Arm Holdings to expand its engineering base in response to future demand. Licensing revenue was noted to be weaker than expected, with some transactions possibly rolling over into the June quarter. The shareholder letter also emphasized momentum in AI design and the broadening use of Arm technology in edge AI, automotive, and data centers, which are expected to drive growth in the upcoming year.
Although the company did not provide a specific forecast for FY26, the ongoing investment phase and higher operating expenses have fueled concerns about a potential slowdown in earnings momentum. Nonetheless, Morgan Stanley expects Arm Holdings to continue making solid progress throughout the year, supported by a diverse range of growth drivers.
In other recent news, Arm Holdings has been the focus of several analyst reports with varied perspectives on its future performance. Raymond (NSE:RYMD) James adjusted its price target for Arm Holdings to $140 from $175, maintaining an Outperform rating. This revision followed Arm’s fourth fiscal quarter results, which exceeded expectations, and a slightly weaker first-quarter outlook. The company reported an 18% year-over-year increase in royalty revenue, driven by stronger adoption of its ARMv9 architecture. Similarly, BofA Securities reduced its price target to $135 from $144, while maintaining a Buy rating, citing uncertainties due to global tariffs and deal closure delays. Analyst Vivek Arya projected a 17-18% sales growth for fiscal year 2026, with expectations for top-line growth to realign with a 20%+ trend from fiscal year 2027 onwards.
Meanwhile, Barclays (LON:BARC) adjusted its price target to $115 from $125, keeping an Overweight rating, noting seasonal declines in royalties and increased operational expenditure. HSBC lowered its price target to $95 from $115, maintaining a Reduce rating, highlighting potential downsides in fiscal year 2026 earnings due to necessary growth investments. William Blair reaffirmed an Outperform rating, emphasizing Arm’s robust business performance and traction in the data center market. Despite these mixed assessments, analysts generally recognize Arm’s potential in advanced technology markets, such as AI and cloud services, while also acknowledging economic uncertainties impacting the company’s near-term financial outlook.
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