Introduction
ARM Holdings (ARM) is a leading semiconductor and software design company that specializes in the development of microprocessors, physical IP, and related software and tools. The company’s technology is used in a wide range of products, including smartphones, tablets, and other mobile devices, as well as in servers, networking equipment, and automotive systems.
Earnings Expectations
According to Investopedia, ARM is expected to report revenue of $2.43 billion for Q1 FY 2025, up 10.3% year-over-year. Earnings per share (EPS) are expected to be $0.23, up 15.0% year-over-year. These estimates are based on the consensus of analysts covering the company, and they represent the average of all the estimates provided by these analysts.
Artificial Intelligence (AI) Growth
ARM’s AI business is expected to be a key driver of growth, with the company’s AI-related revenue expected to increase by 20% year-over-year. According to The Motley Fool, ARM’s AI business is one of the most overlooked areas of the company, but it has the potential to be a major growth driver in the future. The company’s AI technology is used in a wide range of applications, including voice recognition, image processing, and natural language processing.
HSBC Downgrade
ARM’s stock price has been impacted by a recent downgrade from HSBC, which lowered its rating on the stock to “Reduce” from “Hold”. However, HSBC analyst Frank Lee raised the price target for ARM to $105 from $100, citing the company’s AI potential. The downgrade was due to concerns about the company’s exposure to the smartphone market, which has been facing challenges due to the ongoing trade tensions between the US and China.
Earnings Call
During the earnings call, investors will be looking for updates on ARM’s AI business, as well as its guidance for the rest of the year. The company’s management team will likely provide insight into the company’s strategy for growing its AI business and expanding its presence in the market. They may also discuss the company’s efforts to diversify its revenue streams and reduce its dependence on the smartphone market.
Technical Analysis
From a technical perspective, ARM’s stock price has been trending upwards over the past few months, but it has recently pulled back due to the HSBC downgrade. The stock is currently trading near its 50-day moving average, which has provided support in the past. A break above this level could lead to further gains, while a break below could lead to further selling. The stock has also been trading within a well-defined range, with resistance at around $115 and support at around $100.
Valuation
ARM’s valuation is currently in line with its peers, with a price-to-earnings (P/E) ratio of around 25. However, the company’s forward P/E ratio is lower, at around 20, indicating that the stock may be undervalued. The company’s price-to-sales (P/S) ratio is also lower than its peers, at around 5, indicating that the stock may be undervalued.
Conclusion
ARM Holdings is set to report its Q1 FY 2025 earnings on Wednesday, and investors will be closely watching for updates on the company’s AI business and guidance for the rest of the year. While the HSBC downgrade has impacted the stock price, the company’s AI potential and growth prospects make it an attractive investment opportunity. The stock’s valuation is also attractive, with a lower forward P/E ratio and P/S ratio compared to its peers.
