Arm’s AI chip move and upcoming earnings put business model in focus

Arm Holdings (NasdaqGS:ARM) is drawing fresh attention after confirming plans to design proprietary AI chips alongside its licensing model, as investors also look ahead to the May 6 earnings report and recent royalty driven momentum.

Arm’s recent AI chip announcement and the upcoming May 6 earnings call come after a sharp run, with a 30 day share price return of 36.11% and a 1 year total shareholder return of 71.23%, even as the 7 day share price return of 10.11% decline signals some cooling after strong momentum.

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With Arm now trading around US$211, above an average analyst target of about US$172 and carrying a low value score of 1, the key question is whether recent AI optimism leaves any upside or if markets are already pricing in future growth.

Most Popular Narrative: 439% Overvalued

Arm’s last close at $211.07 sits far above the most followed narrative fair value of $39.16, which frames the current price as richly valued on that view.

In Q2’25 ARM reported revenues of $844M, up 5% YoY. Sales were down 10% from Q1, as the company marked its first sequential drop after Q4’FY23. The company made $3.5B in revenues over a 12-month period, and is up by 18% on a TTM basis. This is close to my revised 16% CAGR estimate, and I maintain my 2029 $7.3B revenue target for ARM. Management issued Q3 and FYE 2025 guidance at the $945M, and $3.95B respective midpoints.

Curious how revenue growth, margin expectations, and a future profit multiple combine to justify such a low fair value versus today’s price? The narrative’s assumptions link Arm’s growth runway, profitability path, and valuation multiple into one coherent forecast, but the exact levers only become clear when you see the full build.

Result: Fair Value of $39.16 (OVERVALUED)

However, if Arm continues to outpace its own 16% revenue growth assumption or secures more Apple style long term deals, this low fair value case could be challenged.

Next Steps

Given how split views on Arm currently look, this is a good moment to move quickly and weigh the evidence yourself using the 1 key reward.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.