Stock prices of weapons (arm -2.96%)) It slipped despite the company posting record-breaking third quarter revenues. However, at the time of writing, stocks have had a strong start to this year, growing around 35% per year.
Take a closer look at the latest results from Semiconductor Company to see if price dips are a purchase opportunity.
Strong AI demand
ARM is now tied to the smartphone market. Because its technology is built into almost every advanced smartphone in the world. But the technology is also beginning to infiltrate data centers. At the same time, the new ARMV9 technology features a much higher loyalty rate than older V8 technology, such as about twice the computing subsystem (CSS) that supports artificial intelligence (AI) workloads in edge devices and data centers. I’m doing it.
ARM does not design its own chips. Instead, they license the technology. Historically, it generates revenue through royalty payments. This collects royalties per unit based on the number of chips used in the design. Recently, they collect license revenues through their intellectual property (IP) portfolios via subscriptions. Both arrangements have a very high total margin.
In the third quarter of 2025, ARM revenue rose 19% year-on-year to a record $983 million. Meanwhile, the adjusted EPS jumped 26% to $0.39. These results far exceeded analysts’ expectations for an adjusted EPS against $949 million revenue, as compiled by FactSet.
Quarterly royalty revenue rose 23% to $580 million. It celebrated the powerful adoption of ARMV9 technology, increased chip use in data centers, and jumping towards improving the Internet of Things (IoT) space. The company called the Dimenity 9400 chip, used in Chinese companies Oppo and Vivo’s flagship smartphones, as the driver. Meanwhile, in the data center market, Amazon’s Graviton CPU (Central Processing Unit) has been called as a strong contributor.
Meanwhile, license revenues rose 14% year-on-year to $403 million. We signed a total access agreement for additional ARMs in the quarter, bringing it to 40. We also added multiple customers to the ARM Flexible Access program, ending the quarter with 295 customers.
The remaining performance obligation (RPO) is a combination of deferred revenue and backlog, an indicator of future revenue, down 3% to $2.333 billion. We expect 28% of this amount to be recognized as revenue for the next 12 months.
Looking ahead, ARM has narrowed the scope of its year-round guidance. Currently, an adjusted EPS of $1.56 to $1.64 is expected with revenues of $3.94 billion to $4.04 billion. Previously, they were guiding adjusted EPS of $1.45 to $1.65 with revenues of $3.8 billion to $4.1 billion.
Previous Guidance Current Guidance Revenues $3.8 billion to $4.1 billion EPS $3.94 billion to $4.04 billion $1.45 to $1.65 to $1.65 to $1.64
For the fourth quarter, ARM forecast adjusted EPS is between $0.48 and $0.56 against revenues between $1.15 billion and $1.275 billion. Analysts were looking for an EPS of $0.53 with revenue of $1.22 billion.
The company is excited about the $500 billion announced Stargate Data Center project, saying it will be the perfect CPU for its first configuration. He said the overall use of the Grace Blackwell GB200S, which combines an NVIDIA GPU (graphics processing unit) with an ARM-based CPU, will be an accelerator for data center growth.
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Is it time to buy ARM Holdings Stock?
My arms are now in a solid quarter. China is doing well, accounting for around 25% of its quarterly revenue, but continues to take solid intake of new high royalty ARMV9 technology. We expect this to return to mid-teens in the future, but its success with Chinese smartphone makers is positive as it has gained share with Western brands in the country.
The Stargate project is a good opportunity for the company, and the growing relationship between parent companies SoftBank and Openai can bring benefits as it appears to further advance into the data center. The company is already making progress as it has a design with Amazon’s Graviton, Nvidia’s Grace Blackwell and Microsoft’s Cobalt.
Meanwhile, ARMV9 technology is still around 25% of its total loyalty revenues, and there is still a good opportunity to continue growing this part of the business. We believe that V9 penetration could ultimately reach 67% to 70% of total royalties.
Looking at the ratings, ARM trades over 80 acquisitions (P/E) ratios, based on analyst estimates for fiscal year 2026.
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It’s highly rated, but the company generally trades at a premium given its margin-based royalty and license-based business model, which often sees royalty revenue streams that last for more than a decade. As of the September 2023 IPO, it said that nearly half of its royalty revenue came from ARM products released between 1990 and 2012.
In the long run, I think ARM inventory should continue to be a solid winner, but with a strong start to stocks up until that year, I didn’t chase it here, even after this little pullback. .
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. Motley Fool has jobs at Amazon, Factset Research Systems, Microsoft, and Nvidia and recommends. Motley Fool recommends the following options: A $395 phone call with length of Microsoft for January 2026 and a $405 phone call with short term Microsoft for January 2026. Motley Fools have a disclosure policy.
