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Arm Holdings: Is the AI Stock a Buy Heading into Earnings?
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The artificial intelligence theme has gripped the market over the last year, with many scrambling for exposure. Many AI-related stocks have soared, but the tide has turned recently, with several of the stocks at the forefront of the trade losing steam lately.
Interestingly enough, we’ll hear from one of the companies involved in the theme, Arm Holdings (ARM - Free Report) , on July 31 after the market’s close. Arm constructs, develops, and licenses high-performance, low-cost, energy-efficient IP solutions for CPUs, GPUs, NPUs, and other interconnected technologies.
In its short history, the company has delivered so far, posting results that have easily exceeded our expectations over the last year. Let’s take a closer look at how the company stacks up heading into the release.
Arm Holdings Posts Record Results
Arm’s quarterly releases have reflected favorable underlying business trends, with earnings and revenue in its latest release exceeding the high end of prior guidance. Shares have been volatile year-to-date, experiencing big post-earnings moves but overall up a staggering 80%.
Image Source: Zacks Investment Research
The favorable results were driven by record royalty revenue, with Armv9 (the company’s most advanced technology) penetration growing rapidly. In fact, revenue from chips based on Armv9 technology contributed around 20% of royalty revenue in the period, up from roughly 15% in the period prior.
Licensing revenue throughout its latest period was also notably strong, driven by high-value contracts and snowballing demand for the company’s power-efficient technology for AI-related applications.
The company wrapped up the favorable release with a positive statement: 'We believe these fundamental trends will continue and we expect next quarter to also deliver strong year-over-year growth in revenue and profits.’
Analysts have agreed on the company’s bright outlook, with the $0.35 Zacks Consensus EPS estimate for the quarter to be reported up nearly 10% since mid-May. Revenue expectations have primarily remained the same, however, with the company forecasted to post $907 million in sales.
Image Source: Zacks Investment Research
Increased penetration of Armv9 will be a key item to watch for the release, with licensing revenue also critical. All in all, the company appears ready to post strong quarterly results, but the recent broader weakness surrounding AI stocks could weigh on shares post-earnings if the results don’t wow the market.
Meta Platforms On Deck
Meta Platforms (META - Free Report) , a partner of Arm Holdings, is also gearing up to unveil quarterly results this week on July 31 after the market’s close. The company faced pressure following its latest release due to the announcement of higher CapEx to accelerate its infrastructure investments for its artificial intelligence (AI) roadmap.
Investors will look for more color on CapEx trends surrounding AI, which was also a focal point in Alphabet’s (GOOGL - Free Report) quarterly release. Alphabet’s comments surrounding AI CapEx spooked some. Earnings expectations for META’s release have increased over recent months, with the $4.69 per share expected reflecting 45% Y/Y growth.
Image Source: Zacks Investment Research
Valuation multiples for the tech giant have remained sound, with the current 21.3X forward 12-month earnings multiple in line with the five-year median and well beneath five-year highs of 31.5X. Meta Platforms currently sports a Style Score of ‘C’ for Value.
Image Source: Zacks Investment Research
Bottom Line
An investor favorite amid the AI frenzy, Arm Holdings (ARM - Free Report) is gearing up to reveal its next set of quarterly results. In its short history, the company's quarterly releases have lived up to expectations, regularly exceeding expectations and posting strong growth.
Arm is expecting another strong report, but the recent weakness among AI-related stocks could take hold post-earnings if the results don’t wow investors. Nonetheless, the stock remains a prime long-term selection for those seeking exposure to AI, with the company continuing to enjoy positive earnings estimate revisions across all timeframes.
A partner of the company, Meta Platforms (META - Free Report) , is also reporting quarterly results this week, with investors likely to focus heavily on AI CapEx as they did in Alphabet’s (GOOGL - Free Report) quarterly release.
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Arm Holdings: Is the AI Stock a Buy Heading into Earnings?
The artificial intelligence theme has gripped the market over the last year, with many scrambling for exposure. Many AI-related stocks have soared, but the tide has turned recently, with several of the stocks at the forefront of the trade losing steam lately.
Interestingly enough, we’ll hear from one of the companies involved in the theme, Arm Holdings (ARM - Free Report) , on July 31 after the market’s close. Arm constructs, develops, and licenses high-performance, low-cost, energy-efficient IP solutions for CPUs, GPUs, NPUs, and other interconnected technologies.
In its short history, the company has delivered so far, posting results that have easily exceeded our expectations over the last year. Let’s take a closer look at how the company stacks up heading into the release.
Arm Holdings Posts Record Results
Arm’s quarterly releases have reflected favorable underlying business trends, with earnings and revenue in its latest release exceeding the high end of prior guidance. Shares have been volatile year-to-date, experiencing big post-earnings moves but overall up a staggering 80%.
Image Source: Zacks Investment Research
The favorable results were driven by record royalty revenue, with Armv9 (the company’s most advanced technology) penetration growing rapidly. In fact, revenue from chips based on Armv9 technology contributed around 20% of royalty revenue in the period, up from roughly 15% in the period prior.
Licensing revenue throughout its latest period was also notably strong, driven by high-value contracts and snowballing demand for the company’s power-efficient technology for AI-related applications.
The company wrapped up the favorable release with a positive statement: 'We believe these fundamental trends will continue and we expect next quarter to also deliver strong year-over-year growth in revenue and profits.’
Analysts have agreed on the company’s bright outlook, with the $0.35 Zacks Consensus EPS estimate for the quarter to be reported up nearly 10% since mid-May. Revenue expectations have primarily remained the same, however, with the company forecasted to post $907 million in sales.
Image Source: Zacks Investment Research
Increased penetration of Armv9 will be a key item to watch for the release, with licensing revenue also critical. All in all, the company appears ready to post strong quarterly results, but the recent broader weakness surrounding AI stocks could weigh on shares post-earnings if the results don’t wow the market.
Meta Platforms On Deck
Meta Platforms (META - Free Report) , a partner of Arm Holdings, is also gearing up to unveil quarterly results this week on July 31 after the market’s close. The company faced pressure following its latest release due to the announcement of higher CapEx to accelerate its infrastructure investments for its artificial intelligence (AI) roadmap.
Investors will look for more color on CapEx trends surrounding AI, which was also a focal point in Alphabet’s (GOOGL - Free Report) quarterly release. Alphabet’s comments surrounding AI CapEx spooked some. Earnings expectations for META’s release have increased over recent months, with the $4.69 per share expected reflecting 45% Y/Y growth.
Image Source: Zacks Investment Research
Valuation multiples for the tech giant have remained sound, with the current 21.3X forward 12-month earnings multiple in line with the five-year median and well beneath five-year highs of 31.5X. Meta Platforms currently sports a Style Score of ‘C’ for Value.
Image Source: Zacks Investment Research
Bottom Line
An investor favorite amid the AI frenzy, Arm Holdings (ARM - Free Report) is gearing up to reveal its next set of quarterly results. In its short history, the company's quarterly releases have lived up to expectations, regularly exceeding expectations and posting strong growth.
Arm is expecting another strong report, but the recent weakness among AI-related stocks could take hold post-earnings if the results don’t wow investors. Nonetheless, the stock remains a prime long-term selection for those seeking exposure to AI, with the company continuing to enjoy positive earnings estimate revisions across all timeframes.
A partner of the company, Meta Platforms (META - Free Report) , is also reporting quarterly results this week, with investors likely to focus heavily on AI CapEx as they did in Alphabet’s (GOOGL - Free Report) quarterly release.