Arm Holdings Share Prices Volatile Amid Trade War Developments

Share prices of Arm Holdings(NASDAQ: ARM) initially fell after the company issued a cautious outlook with its fiscal 2025 fourth-quarter results on May 7. However, shares have since rallied this week following reports that tensions in the U.S.-China trade war are easing. Currently, the stock is trading up over 17% from last year but remains down 31% from its all-time highs reached in summer 2024.

This recent volatility underscores the importance of examining Arm’s latest earnings results and guidance to gauge how investors should position their shares.

Strong Fiscal Results but Cautious Outlook

Despite the initial drop in stock price, Arm’s fiscal Q4 results were robust. The company reported a year-over-year revenue increase of 34% to $1.24 billion, surpassing the $1.23 billion consensus among analysts. Record-breaking royalty and license revenues contributed significantly to this growth.

Leading the way, license revenue skyrocketed by 53% year over year to reach $634 million. The growth stemmed from strong demand for Armv9 technology, though management cautioned that revenue can fluctuate based on the timing and magnitude of multiple high-value license deals. Furthermore, Arm secured a multi-year artificial intelligence (AI) partnership with the Malaysian government, aimed at enhancing AI development within the nation. This agreement will provide Malaysia access to Arm technology at the Compute Subsystem (CSS) level for rapid chip design.

In the latest quarter, Arm expanded its Total Access licenses from 40 to 44, with over half of its top 30 customers utilizing these licenses. The company also reported an uptick in its Arm Flexible Access customer base, which reached 314.

Meanwhile, royalty revenue increased by 18% year over year to $607 million. This growth was fueled by the ongoing adoption of Arm’s newer Armv9 architecture, which has a higher royalty rate than its predecessor, Armv8. Growth was broad-based, with notable strength across the data center, automotive, smartphone, and Internet of Things sectors.

In the data center market, Arm anticipates that half of all new server chips and hyperscalers will be Arm-based this year, partly due to the introduction of Nvidia‘s (NASDAQ: NVDA) Blackwell chip. Although Nvidia’s GPUs do not utilize ARM architecture, the new Grace Blackwell superchip combines its GPUs with Arm-based CPUs. Additionally, Arm is observing an increased number of customers interested in custom silicon solutions, including CPUs, GPUs, and NPUs (neural processing units).

In the smartphone sector, Arm’s royalty revenue rose by 30% despite only a 2% increase in shipments during the quarter. With technology integrated into nearly all advanced smartphones, this market remains vital. The launch of the Armv9-based platform focused on Edge AI has also contributed to the revenue increase, with several smartphone chipmakers adopting this platform.

Annualized contract value (ACV), which smooths out license revenue, grew by 15% to $1.37 billion.

Looking ahead, Arm’s management refrained from providing full-year guidance, citing limited visibility. Historically, 10% to 20% of its revenue comes from shipments to the U.S.

For the first quarter, Arm expects revenue to range from $1.0 billion to $1.1 billion, reflecting a year-over-year growth of 12%. Projected royalty growth is 25% to 30%, though the company anticipates challenges for licensing revenue. Adjusted EPS is expected to be between $0.30 and $0.38, while analysts had forecasted $0.42 on $1.1 billion in revenue.

Is Arm Holdings Stock a Good Buy?

The company is seeing strong momentum in the data center sector as it capitalizes on the rollout of Nvidia’s Grace Blackwell superchip. Similarly, Arm is maintaining solid traction in the smartphone market despite modest shipment growth. Historically, the company has indicated that its Armv9 technology can yield royalty rates up to double for CSS, which is being utilized in both data centers and edge devices like smartphones for AI workloads. This positions Arm as a notable player in the AI space.

The recent thawing of the U.S.-China trade war may alleviate some tariff-related pressures. While Arm is growing significantly faster than the smartphone market, shipment volumes remain critical. This should mitigate investor concerns regarding a possible slowdown in the smartphone market.

In terms of valuation, the stock currently trades at a forward price-to-earnings (P/E) ratio exceeding 67 based on fiscal 2026 estimates. Although this is high, it approaches the lower end of the range where the stock has typically traded since its IPO in September 2023.

Data by YCharts.

Overall, Arm appears well-positioned for long-term growth and has one of the stronger business models in the semiconductor sector. However, given its current valuation, it may be prudent to maintain smaller position sizes.

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Geoffrey Seiler has no positions in any mentioned stocks. The Motley Fool recommends Nvidia and has a disclosure policy in place.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.