Is Arm at an Attractive Price After a 23% Pullback and Semiconductor Sector Buzz?

• Wondering whether Arm Holdings is a smart buy at today's prices? You're not alone, especially as fresh headlines and market shifts put the stock in the spotlight. This raises the big question: is it undervalued or overpriced right now?
• The share price has experienced quite a ride lately, with a 23% drop over the past month but still managing to eke out a 2.5% gain year-to-date. These are signs that investor sentiment and risk perceptions have been shifting quickly.
• Recent news has focused on increased activity in the semiconductor sector, with Arm Holdings attracting attention from both industry insiders and big-name investors. Anticipation around new partnerships and competitive positioning has further fueled debate and volatility in the stock.
• According to our valuation checks, Arm Holdings scores just 1 out of 6 for being undervalued. This number definitely calls for a deeper dive into how we measure value, and we will get to an even smarter way to assess valuation by the end of the article.

Arm Holdings scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Arm Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and then discounting them back to their present value. This process aims to determine what the business is worth today based on the money it is expected to generate over time.

For Arm Holdings, the latest reported Free Cash Flow (FCF) stands at $1.29 billion. Analyst estimates suggest these annual cash flows will grow steadily, reaching $5.27 billion by 2030. Although analysts provide detailed projections for the next five years, Simply Wall St extends these forecasts up to ten years to capture the likely long-term growth trajectory.

Based on this two-stage DCF approach, Arm Holdings has an estimated intrinsic value of $64.14 per share. However, the model indicates that the current share price is 104.9% above this intrinsic value. This means the stock is significantly overvalued according to this method.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Arm Holdings may be overvalued by 104.9%. Discover 929 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Arm Holdings.

Approach 2: Arm Holdings Price vs Sales

The Price-to-Sales (P/S) ratio is often considered a go-to valuation metric for profitable technology companies like Arm Holdings, especially when earnings can fluctuate but strong sales growth is present. The P/S ratio helps investors understand how much they are paying for each dollar of revenue, offering a useful measure of relative value.

Growth expectations and perceived business risks both play significant roles in determining what qualifies as a “normal” or “fair” P/S ratio. Companies with much higher growth prospects or more stable revenue streams typically command higher multiples. Those facing uncertainty or lower growth tend to see lower ratios.

At the moment, Arm Holdings trades at a P/S ratio of 31.6x. This is significantly higher than both the semiconductor industry average of 4.5x and the average of its peers at 6.9x. On the surface, this suggests a substantial valuation premium.

Simply Wall St’s proprietary “Fair Ratio” provides a more nuanced benchmark than simple peer or industry comparisons. This custom metric factors in expected growth, profit margins, market capitalization, and sector-specific risks, yielding a tailored fair value multiple suited to Arm’s profile.

According to this Fair Ratio, Arm warrants a much higher P/S of 42.8x because of its exceptional growth, strong competitive advantages, and resilience. Since Arm’s current P/S ratio is meaningfully below the Fair Ratio, this suggests the stock is actually trading at a discount given its fundamentals.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Arm Holdings Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative goes beyond just the numbers; it is your story and perspective for a company, reflecting your forecast of its future growth, margins, and risk factors. By tying Arm Holdings’ business story to your chosen set of numbers, a Narrative generates your Fair Value for the stock and provides a clearer context for your investment decision.

Narratives are an easy and accessible feature on Simply Wall St’s Community page, used by millions of investors. They allow you to compare your own Fair Value estimate to the current price, and decide whether to buy, hold, or sell based on your unique assumptions. As new news, earnings, or macro changes break, Narratives update dynamically, keeping your outlook in sync with the latest developments.

For Arm Holdings, some investors build Narratives that support a Fair Value as low as $70 per share, driven by concerns over interest rates and sentiment disconnects, while others model optimistic scenarios with Fair Values up to $210 per share based on AI-driven upside and deepening ecosystem advantages. Creating and tracking your Narrative puts the power of valuation in your hands, making decisions more transparent and adaptable than ever before.

For Arm Holdings, however, we'll make it really easy for you with previews of two leading Arm Holdings Narratives:

🐂 Arm Holdings Bull Case

Fair Value: $166.72

Undervalued by approximately 21.1%

Revenue Growth Rate: 22.1%

• AI momentum, custom silicon, and rising royalty rates are driving substantial royalty and earnings growth. This is supported by premium IP and a large developer ecosystem.
• Expansion into AI, IoT, and new compute segments, along with robust partner engagement, strengthens recurring revenue streams and positions Arm for sustainable margin expansion.
• Analysts expect a 7.7% upside from the current price, projecting revenue of $7.4 billion and a net profit margin of over 30% by 2028, but highlight execution risks and the need for continued market leadership.

🐻 Arm Holdings Bear Case

Fair Value: $70.00

Overvalued by approximately 87.9%

Revenue Growth Rate: -4.3%

• The current market price is far above calculated intrinsic value, as momentum and optimism have detached the stock from long-term earnings fundamentals.
• Rising rates and macro uncertainty support a steep discount; any reversal in sentiment or earnings delivery could lead to rapid devaluation.
• Although Arm’s role in semiconductors remains pivotal, investors should distinguish its long-term prospects from short-term speculative "bubble wave" pricing risk.

Do you think there's more to the story for Arm Holdings? Head over to our Community to see what others are saying!

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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