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Arm Holdings (ARM) Down 33% in a Month: Should You Buy the Dip?
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In the past month, shares of Arm Holdings plc (ARM - Free Report) have declined 33.4% compared with a 10.1% decline in the broader industry.
Looking beyond this one-month performance, ARM’s stock has dipped 2.5% over the past six months but remains up 55.7% year to date, suggesting that the current downturn is part of a broader correction phase.
Image Source: Zacks Investment Research
The stock closed at $117 in its last trading session, 38% below its 52-week high of $188.75. Additionally, ARM is trading below its 50-day moving average, indicating a bearish sentiment among investors.
ARM Stock Trades Above 50-Day Average
Image Source: Zacks Investment Research
Corrections following a massive rally are natural in the stock market, but a sharp decline within a short period often signals immediate concerns. The recent drop can be attributed to weak economic data, which highlighted rising unemployment and increased fears of a recession. Additionally, a rate hike by the Bank of Japan prompted a wave of selling due to the heavy borrowing in the yen to finance purchases of other assets.
Although there hasn't been any specific news about ARM that would cause this decline, negative developments involving two of its key customers may have contributed. Reports emerged last week that Nvidia (NVDA - Free Report) , a close partner of Arm, might delay the launch of its new Blackwell platform due to a design fault. Moreover, Berkshire Hathaway disclosed that it had sold half of its stake in Apple (AAPL - Free Report) , another key customer of ARM.
Given the recent steep dip in ARM shares, investors are naturally questioning whether now is the right time to buy into the stock. Let’s explore this in more detail.
ARM’s Strength in AI, Cloud Computing and Smartphones
Arm is at the forefront of AI, developing advanced chip designs and software tools that are essential in smartphones, automobiles and cloud data centers. Leading semiconductor companies like Apple, Nvidia, and Qualcomm (QCOM - Free Report) rely on ARM’s innovative chip designs. The company provides foundational designs that clients can further customize, which enhances its market position.
ARM’s strategic positioning within the AI ecosystem suggests that it has the potential for sustained growth beyond the current AI boom. Its cutting-edge v9 architecture and power-efficient processor platforms have garnered significant attention from major industry players, further strengthening ARM's competitive position in the semiconductor market. Moreover, its inclusion in the Nasdaq-100 Index within just 11 months of its initial public offering highlights its growing importance in the global technology sector.
ARM had projected approximately 20% sequential growth in royalty revenues for the first quarter, anticipating higher adoption of the v9 architecture, which typically commands double the royalty rates compared to Armv8 products. The resurgence in the smartphone market and increased market share outside of mobile have contributed to a boost in royalty revenues.
Weakness in IoT and Networking Equipment
However, ARM continues to face challenges in the IoT and networking equipment markets, where persistent inventory corrections have led to ongoing weakness. Additionally, fluctuations in the broader semiconductor industry could impact Arm's revenue streams. The company was unable to raise its full-year fiscal 2025 revenue growth rates in its last reported quarter, leaving investors who were hoping for positive news somewhat disappointed.
Top and Bottom-Line Prospects Remain Healthy
The Zacks Consensus Estimate for ARM’s fiscal 2025 earnings is pegged at $1.56, indicating 22.8% growth from the year-ago level. Earnings in fiscal 2026 are expected to increase 32.3% from the prior-year actuals. The company’s sales are expected to increase 23.2% and 23.5% year over year, respectively, in fiscal 2025 and 2026.
The Stock Remains Expensive
Despite the significant decline in the past month, ARM’s stock is still relatively expensive. It is currently priced at around 67 times forward 12-month earnings per share (EPS), which is significantly higher than the industry’s average of 33 times. When looking at the trailing 12-month EV-to-EBITDA ratio, ARM is trading at around 133 times, far exceeding the industry’s average of 54 times.
Image Source: Zacks Investment Research
Should You Wait for an Even Lower Price?
Given the stock's current valuation, there may be room for further decline, even after the recent price drop. For investors, it might be prudent to wait for an even lower entry point before considering an investment. While ARM’s strong position in the AI hardware market and its strategic advancements in chip design suggest long-term growth potential, timing the market entry is critical for maximizing returns.
Image: Bigstock
Arm Holdings (ARM) Down 33% in a Month: Should You Buy the Dip?
In the past month, shares of Arm Holdings plc (ARM - Free Report) have declined 33.4% compared with a 10.1% decline in the broader industry.
Looking beyond this one-month performance, ARM’s stock has dipped 2.5% over the past six months but remains up 55.7% year to date, suggesting that the current downturn is part of a broader correction phase.
The stock closed at $117 in its last trading session, 38% below its 52-week high of $188.75. Additionally, ARM is trading below its 50-day moving average, indicating a bearish sentiment among investors.
ARM Stock Trades Above 50-Day Average
Corrections following a massive rally are natural in the stock market, but a sharp decline within a short period often signals immediate concerns. The recent drop can be attributed to weak economic data, which highlighted rising unemployment and increased fears of a recession. Additionally, a rate hike by the Bank of Japan prompted a wave of selling due to the heavy borrowing in the yen to finance purchases of other assets.
Although there hasn't been any specific news about ARM that would cause this decline, negative developments involving two of its key customers may have contributed. Reports emerged last week that Nvidia (NVDA - Free Report) , a close partner of Arm, might delay the launch of its new Blackwell platform due to a design fault. Moreover, Berkshire Hathaway disclosed that it had sold half of its stake in Apple (AAPL - Free Report) , another key customer of ARM.
Given the recent steep dip in ARM shares, investors are naturally questioning whether now is the right time to buy into the stock. Let’s explore this in more detail.
ARM’s Strength in AI, Cloud Computing and Smartphones
Arm is at the forefront of AI, developing advanced chip designs and software tools that are essential in smartphones, automobiles and cloud data centers. Leading semiconductor companies like Apple, Nvidia, and Qualcomm (QCOM - Free Report) rely on ARM’s innovative chip designs. The company provides foundational designs that clients can further customize, which enhances its market position.
ARM’s strategic positioning within the AI ecosystem suggests that it has the potential for sustained growth beyond the current AI boom. Its cutting-edge v9 architecture and power-efficient processor platforms have garnered significant attention from major industry players, further strengthening ARM's competitive position in the semiconductor market. Moreover, its inclusion in the Nasdaq-100 Index within just 11 months of its initial public offering highlights its growing importance in the global technology sector.
ARM had projected approximately 20% sequential growth in royalty revenues for the first quarter, anticipating higher adoption of the v9 architecture, which typically commands double the royalty rates compared to Armv8 products. The resurgence in the smartphone market and increased market share outside of mobile have contributed to a boost in royalty revenues.
Weakness in IoT and Networking Equipment
However, ARM continues to face challenges in the IoT and networking equipment markets, where persistent inventory corrections have led to ongoing weakness. Additionally, fluctuations in the broader semiconductor industry could impact Arm's revenue streams. The company was unable to raise its full-year fiscal 2025 revenue growth rates in its last reported quarter, leaving investors who were hoping for positive news somewhat disappointed.
Top and Bottom-Line Prospects Remain Healthy
The Zacks Consensus Estimate for ARM’s fiscal 2025 earnings is pegged at $1.56, indicating 22.8% growth from the year-ago level. Earnings in fiscal 2026 are expected to increase 32.3% from the prior-year actuals. The company’s sales are expected to increase 23.2% and 23.5% year over year, respectively, in fiscal 2025 and 2026.
The Stock Remains Expensive
Despite the significant decline in the past month, ARM’s stock is still relatively expensive. It is currently priced at around 67 times forward 12-month earnings per share (EPS), which is significantly higher than the industry’s average of 33 times. When looking at the trailing 12-month EV-to-EBITDA ratio, ARM is trading at around 133 times, far exceeding the industry’s average of 54 times.
Should You Wait for an Even Lower Price?
Given the stock's current valuation, there may be room for further decline, even after the recent price drop. For investors, it might be prudent to wait for an even lower entry point before considering an investment. While ARM’s strong position in the AI hardware market and its strategic advancements in chip design suggest long-term growth potential, timing the market entry is critical for maximizing returns.
ARM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.