We came across a bullish thesis on Arm Holdings plc (ARM) on Substack by Stock Analysis Compilation. In this article, we will summarize the bulls’ thesis on ARM. Arm Holdings plc (ARM)’s share was trading at $132.10 as of Dec 19th. ARM’s trailing and forward P/E were 218.39 and 66.67 respectively according to Yahoo Finance.
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Arm is well-positioned for long-term revenue growth driven by its royalty-based business model, diversification into high-growth markets, and an undervalued market position. The company continues to see strong momentum in its next-generation Armv9 architecture, which is gaining traction in the mobile market and expanding its footprint in cloud server compute and automotive markets. Notably, Armv9 royalties, which command twice the royalty rate of Armv8, have grown rapidly, contributing 25% of total royalty revenue, up from 15% just two quarters ago. This growth highlights Arm’s ability to capitalize on its technological advancements and pricing power in critical end markets.
Arm’s diversified revenue streams now extend significantly beyond mobile, which once dominated two-thirds of its business. As of its 2023 fiscal year, markets outside of mobile contributed approximately 55% of total revenue. This diversification aligns with its expansive addressable market, estimated at $300 billion in annual expenditures across its key verticals, which are expected to grow at a mid-single-digit compound annual rate. Arm’s strong brand recognition, value proposition, and extensive ecosystem provide a robust foundation for sustained growth across all end markets.
The company’s strategic positioning in high-demand sectors such as automotive and cloud computing, coupled with its ability to maintain dominance in mobile, underscores its potential for significant revenue expansion. With these factors in place, Arm represents an undervalued opportunity for investors seeking exposure to a royalty-driven, high-growth business with a diversified and expanding market presence.
Arm Holdings plc (ARM) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held ARM at the end of the third quarter which was 38 in the previous quarter. While we acknowledge the risk and potential of ARM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.