Dear ARM Stock Fans: Mark Your Calendar for July 31

Arm Holdings (NASDAQ:ARM) has more than tripled in valued since its Sept. 14 initial public offering. It started trading at a market capitalization of $54 billion and today is worth over $182 billion. Shares that originally went for $51 a stub now trade at $181 each. ARM stock is up 141% in 2024 alone.

The tremendous drive higher in ARM stock is because of the demand frenzy for artificial intelligence, even though the CPU architecture developer only indirectly benefits from the technology.

While it is the premier provider of smartphone architecture where it owns an astounding 99% share of the market, increasingly its designs are found in data centers and PCs.

On July 31, Arm Holdings will release its fiscal 2025 first quarter earnings. All eyes will be on the results to see the inroads it is making on x86, which is currently the dominant architecture in the space. 

Let’s dive in to see what investors might see in the report and whether that means ARM stock will continue its meteoric rise.

A Rising Revenue Tide

Arm Holdings doesn’t make semiconductors. Rather, it develops CPU architecture and licenses the intellectual property from it to its customers. Revenue is growing strongly.

Yet management’s guidance for the first quarter left the market underwhelmed. It was not the blowout expected and full-year revenue forecasts of $3.95 billion at the midpoint of its range just missed Wall Street’s estimates of $3.99 billion. The stock tumbled 28% afterward.

Although the stock regained all the lost ground and then some (ARM stock doubled since then), it suggested the ride higher wouldn’t be smooth.

Analysts may be missing the bigger picture though. Licensing is the key to Arm Holdings future as it will drive royalty revenue higher in the years ahead.

Arm Architecture Everywhere

Arm’s architecture is used by chipmakers and technology companies to design their own chips and CPUs.

Customers like Apple (NASDAQ:AAPL) and Samsung can then use the chip in their smartphones or, like Qualcomm (NASDAQ:QCOM), sell the chip to others. Either way, Arm gets a cut of the sale as a royalty. 

All of Arm’s customers pay both license fees and royalty fees for every chip shipped. So the more products or CPUs its customers sell, the more Arm makes.

Arm is seeing greater adoption of its Armv9 architecture, particularly in smartphones, the auto industry and by hyperscalers when building out data centers.

Developed with security and AI as the primary operating goal, it is already incorporated into every Android phone and most PCs. Currently, the market estimates the AI chips at $30 billion, but it could exceed $100 billion within five years.

Arm is widening its lens to take a share in other markets now too. And analysts estimate it is charging a 4% to 5% royalty on the latest Armv9 design, or double what it received for the previous iteration. Barron’s reports it receives $100 for every chip sold.

Future Revenue and ARM Stock

Apple, Samsung and other smartphone makers are incorporating AI into their products. PC makers like Dell (NYSE:DELL) are introducing all new lineups that are rich with AI features. Morgan Stanley analysts say Arm-based CPUs will be embedded in all future computers.

And because the Arm architecture is a power-efficient and high-performance technology, it is seeing greater adoption of its Arm Total Access package of IP products, tools and models. 

Data centers, in particular, are adopting the architecture. The chip’s low power needs are perfect for their high energy consumption. It is leading to more long-term ATA contracts being signed, up 15% in the fourth quarter to $1.18 billion.

Arm Holdings has beaten analyst expectations for each of its quarterly reports as a public company. There is every reason to expect it will do so again. Yet ARM stock is not cheap. That may not matter to investors who view the stock as worth the premium paid.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.