Arm Holdings PLC

Arm Holdings PLC (NASDAQ: ARM) operates a global computing platform focused on designing and licensing high-performance, energy-efficient Arm Compute architectures. The company’s core activities include the licensing, marketing, and research and development of CPU design intellectual property (IP), graphics and system IP, as well as market-optimized platform IP. It also provides related software, tools, and support services to its customers worldwide.

As per previous Kalkine’s Global AI and Emerging Market Report published on ‘ARM’ on Sep 08, 2025, Kalkine provided an ‘Buy’ stance on the stock at USD 139.54 based on fundamental analysis and the stock price has now moved up by ~ 25.41% since then.

Noted below are the details of support and resistance levels provided in our previous report: 

Rationale:

• Margin Compression and Profitability Challenges: Despite strong top-line growth, Arm’s profitability has come under pressure. The company’s GAAP operating margin declined sharply to 10.8% from 19.4%, while non-GAAP operating margin dropped to 39.1% from 47.7% year-on-year. Rising expenses, particularly in R&D, eroded operating leverage. Net income fell 42% on a GAAP basis and 11% on a non-GAAP basis, with diluted EPS dropping to USD 0.12 from USD 0.21 GAAP, and USD 0.35 from USD 0.40 non-GAAP. These trends indicate that while revenue continues to grow, profitability is not keeping pace, reflecting margin headwinds from higher costs and competitive market dynamics.
• Rising Research and Development Expenditure: Arm’s aggressive investment in innovation and compute subsystem (CSS) development has resulted in a substantial cost burden. Non-GAAP operating expenses increased 33% year-over-year to USD 619 million, primarily due to a significant increase in engineering headcount and R&D outlays. Although management emphasizes these investments as critical for long-term growth, the short-term impact has been a squeeze on margins and free cash flow. The higher R&D intensity could also pressure financial flexibility if revenue growth moderates.
• Dependence on a Concentrated Customer Base: Arm remains highly reliant on a limited number of large customers and hyperscalers such as NVIDIA, AWS, Google, and Microsoft for both licensing and royalty revenues. This concentration exposes the company to potential revenue volatility if any of these partners delay product launches, shift architectural priorities, or develop in-house alternatives. The shareholder letter and investor presentation highlight that a significant portion of revenue stems from a few key relationships, raising dependency risks, particularly as Arm expands into data center and AI-specific compute platforms.
• Licensing Revenue Volatility and Slower Growth: While royalty revenue surged 25% year-over-year, licensing and other revenue declined 1%, reflecting the inherent cyclicality of licensing income. Management acknowledged that license revenues are subject to “normal fluctuations in timing and size of multiple high-value agreements”, underscoring limited visibility and uneven quarterly performance. Moreover, remaining performance obligations (RPO) were flat sequentially, suggesting near-term softness in new bookings. This pattern signals that future growth could be lumpy, dependent on a few major contracts rather than consistent, broad-based expansion.
• Execution and Strategic Expansion Risks: Arm’s strategic ambition to move beyond IP licensing into subsystems, chiplets, and potentially full end-chip solutions introduces execution risk. As highlighted during the earnings call, CEO Rene Haas admitted that such integration efforts carry “a lot of execution risk” and complexity. Entering new markets like ASIC design exposes Arm to unfamiliar operational challenges and potential competition with its own customers. The company’s success in scaling these efforts without disrupting existing licensing relationships remains uncertain.
• Exposure to Macroeconomic and Foreign Exchange Pressures: Management cautioned that macroeconomic uncertainty and foreign exchange fluctuations could impact earnings visibility and cost structure. The CFO noted a continuing FX headwind of roughly USD 0.01 per quarter, primarily due to exposure to the euro and pound against the U.S. dollar. Additionally, limited visibility into the indirect impact of tariffs and global demand trends further complicates forecasting for royalty revenue. These factors add to earnings volatility, particularly in a high-expense environment.

Valuation (Using Price/Earnings per share Multiple)

Share Price Chart

Conclusion

Arm Holdings plc, despite strong revenue growth and expanding AI-related opportunities, faces notable challenges that temper its outlook. Profitability has weakened due to surging R&D expenses and rising operating costs, leading to a sharp decline in margins and earnings. The company’s heavy reliance on a handful of major customers such as NVIDIA, AWS, and Google exposes it to concentration risks and revenue volatility, while its licensing income remains inconsistent amid fluctuating deal timings. Moreover, Arm’s push into chiplet and full-solution development introduces significant execution risk, potentially stretching resources and complicating customer relationships. Combined with foreign exchange headwinds and macroeconomic uncertainty, these factors cast doubt on the sustainability of its current growth momentum.

Based on the notional gains, valuation downside and price action stance, a "Sell" recommendation on Arm Holdings PLC (NASDAQ: ARM) has been given at the current market price of USD 175.00 as on 29 October 2025 at 7:05 am PDT.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 29 October 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.