Arm Earnings: Healthy 2025 Guidance Fails to Impress Investors; Maintaining Fair Value Estimate

Wide-moat Arm Holdings’ fourth-quarter results came ahead of FactSet consensus, with $928 million in revenue and $0.36 in adjusted EPS compared with $875 million and $0.30 estimates. However, despite management projecting 22% growth in revenue and adjusted EPS for 2025, the stock took a 9% hit in aftermarket trading as the outlook did not impress investors. At the midpoint of guidance, management expects $3.95 billion in revenue and $1.55 in adjusted EPS in 2025, fairly aligned with our estimates. We believe investors were expecting a stronger 2025 outlook given the high expectations baked into Arm after its 70% share price run since its IPO and its narrative as an AI beneficiary. We are maintaining our $57 fair value estimate and see Arm shares as overvalued and leaving little margin for error. Although shares have declined by 35% since their $150 peak in February, Arm still trades at a 40% premium compared with its peers Synopsys and Cadence on a forward price earnings basis. For more context see our special report, “Blueprint of an Overvaluation: Dissecting Arm's Mispricing.”