Arm Holdings (NasdaqGS:ARM): Evaluating Valuation After High-Profile AI Partnerships With Meta and Astera Labs

Arm Holdings (NasdaqGS:ARM) is capturing attention as it deepens its presence in artificial intelligence through high-profile partnerships, notably teaming up with Meta Platforms to power AI systems on Facebook and Instagram.

See our latest analysis for Arm Holdings.

Bullish sentiment toward Arm has been building thanks to headline-making partnerships and new collaborations focused on AI and infrastructure development. After a run of major news, Arm’s year-to-date share price return of 29% easily outpaces peers. However, the 1-year total shareholder return of just over 8% shows there is still some skepticism around its long-term narrative.

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With Arm’s recent outperformance and new AI alliances making headlines, investors are left wondering if there is untapped value in the stock, or if the market has already priced in Arm’s next stage of growth.

Most Popular Narrative: 6% Overvalued

Arm Holdings’ latest fair value estimate stands at $155.61 per share, just below its last close at $165.61. The small gap pushes its shares into “slightly overvalued” territory in the eyes of the most followed market narrative, which is laser-focused on future AI and compute opportunities.

Arm's accelerating penetration in AI data centers, driven by hyperscalers shifting to custom silicon featuring Arm Neoverse CPUs, positions the company to capture significant royalty revenue growth, especially as their market share soars from about 18% to nearly 50% in a year.

Read the complete narrative.

What exactly drives this rich price tag? A bold financial model powered by blockbuster earnings growth and margin expansion gives Arm plenty of fuel. However, which numbers truly power the forecast? Click through to uncover the ambitious assumptions behind this fair value calculation.

Result: Fair Value of $155.61 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising R&D costs and heavy dependence on flagship smartphones could derail Arm’s ambitious growth forecasts if these segments underperform.

Find out about the key risks to this Arm Holdings narrative.

Another View: The Market’s Multiple Sends a Different Signal

While Arm’s headline fair value relies on future earnings and discounted cash flow, another lens is the company’s price-to-sales ratio. Arm trades at 42.6 times sales, which is strikingly higher than both the US semiconductor industry’s 5.2x and the peer group average of 5.8x. The fair ratio, based on deeper market trends, points to 42.7 times sales, which is almost exactly where Arm stands today. This narrow gap means the market’s optimism is already reflected in the current price, but is that justified, or could it quickly shift if expectations are not met?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Arm Holdings Narrative

If these perspectives don’t match your own, or if you’d rather dig into the numbers firsthand, you have the tools to develop your own insight in just a few minutes. Do it your way

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Arm Holdings.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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