Arm Holdings (ARM -3.34%) stock declined 3.3% on Thursday, following the leading central processing unit (CPU) chip designer's release on the prior afternoon of its report for the third quarter of its fiscal year 2025 (ended Dec. 31, 2024). Let's look at the Q3 report and then the stock's valuation to answer this question: Is Arm stock a buy?Why Arm stock dropped after the earnings releaseArm stock's modest post-earnings-release decline wasn't related to the quarter's results, as revenue and earnings both h ...

Currently leading research at Leverage Shares, I have longstanding professional experience with financial markets. All views are my own and I can assure you that I smile sometimes. M.S.F, M.B.A., IIT Chicago. My Substack where I dig *deep* into global business, market, Asia, culture, trends, etc.Please note: Leverage Shares is an ETP provider that offers daily-rebalanced products in leveraged/unleveraged/inverse/inverse leveraged factors. The company holds both long and short positions in a number of stocks ...

Core Insights - Arm Holdings plc reported stronger-than-expected earnings for FQ3 '25, driven by increasing demand for artificial intelligence products and a rise in royalty-based revenue [1] Company Summary - The earnings report indicates a positive trend for Arm Holdings, highlighting the impact of AI product demand on financial performance [1] - The company's royalty-based revenue stream has shown an upswing, contributing significantly to overall earnings [1] Industry Summary - The semiconductor industry outlook appears favorable, influenced by the growing market for AI technologies [1]

Michael Wiggins De Oliveira is an inflection investor. This means buying into cheap companies at the moment when their narrative is changing and the business is on a path toward becoming significantly more profitable over the next year.With a focus on tech and “the Great Energy Transition (including uranium)”, Michael runs a concentrated portfolio with approximately 15 to 20 stocks and an average holding period of 18 months. Through his 10+ years analyzing countless companies, Michael has accumulated outsta ...

Arm Holdings plc (NASDAQ:ARM) Q3 2025 Earnings Conference Call February 5, 2025 5:00 PM ET Company Participants Jeff Kvaal - Head of IR Rene Haas - CEO Jason Child - CFO Conference Call Participants Lee Simpson - Morgan Stanley Joseph Quatrochi - Wells Fargo Charles Shi - Needham & Company Timm Schulze-Melander - Redburn Atlantic Vijay Rakesh - Mizuho Andrew Gardiner - Citi Harlan Sur - JPMorgan Vivek Arya - Bank of America John DiFucci - Guggenheim Securities Krish Sankar - TD Cowen Mark Lipacis - Evercore ...

Arm Holdings (ARM) reported fiscal third-quarter results that topped Wall Street estimates and raised the midpoint of its narrowed sales outlook. However, shares fell in extended trading Wednesday as investors may have been looking for stronger results. The chip designer and Nvidia (NVDA) partner's third-quarter revenue rose 19% year-over-year to a record $983 million, above the analyst consensus compiled by Visible Alpha. Earnings came in at $252 million, or 24 cents per share, compared to $87 million, or ...

[Introduction and General Information](index=1&type=section&id=Introduction) This section outlines the report's filing details, legal incorporation, defined terms, and cautionary notes regarding forward-looking statements [Report Information](index=1&type=section&id=Report%20Information) Arm Holdings plc filed this Form 6-K report for the quarter ended December 31, 2024, with annual reports filed under Form 20-F - Arm Holdings plc filed a Form 6-K report for the quarter ended December 31, 2024[2](index=2&type=chunk) - The company files annual reports under Form 20-F[2](index=2&type=chunk) [Incorporation by Reference](index=1&type=section&id=Incorporation%20by%20Reference) This 6-K report is incorporated by reference into Arm Holdings plc's Form S-8 registration statement and its prospectus - The Report on Form 6-K is incorporated by reference into the registration statement on Form S-8 (File No. 333-274544) of Arm Holdings plc[4](index=4&type=chunk) [Background and Certain Defined Terms](index=1&type=section&id=Background%20and%20Certain%20Defined%20Terms) This section defines key terms like 'the Company' and 'Annual Report' for consistent use throughout the document - The terms 'the Company,' 'Arm,' 'we,' 'our,' and 'us' refer to Arm Holdings plc and its wholly owned subsidiaries[6](index=6&type=chunk) - The 'Annual Report' refers to Arm's annual report on Form 20-F for the fiscal year ended March 31, 2024, filed on May 29, 2024[6](index=6&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to risks and uncertainties, cautioning readers against undue reliance - The report contains forward-looking statements about future operations, results, and financial performance[9](index=9&type=chunk)[10](index=10&type=chunk) - These statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially[9](index=9&type=chunk)[10](index=10&type=chunk) - The company does not undertake any obligation to update forward-looking statements, except as required by law[10](index=10&type=chunk) [Financial Statements (Unaudited)](index=4&type=section&id=Financial%20Statements%20(Unaudited)) This section presents Arm Holdings plc's unaudited income statements, comprehensive income, balance sheets, shareholders' equity, and cash flow statements for the periods ended December 31, 2024 [Condensed Consolidated Income Statements](index=4&type=section&id=Condensed%20Consolidated%20Income%20Statements) Arm Holdings plc reported significant growth in revenue and net income for both the three and nine months ended December 31, 2024, compared to the prior year Condensed Consolidated Income Statement Highlights | Metric (in millions) | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | YoY Change (%) | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | YoY Change (%) | | :------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Total Revenue | $983 | $824 | 19.3% | $2,766 | $2,305 | 20.0% | | Gross Profit | $955 | $788 | 21.2% | $2,673 | $2,192 | 21.9% | | Operating Income | $175 | $134 | 30.6% | $421 | $89 | 373.0% | | Net Income | $252 | $87 | 189.7% | $582 | $82 | 610.0% | | Basic EPS | $0.24 | $0.08 | 200.0% | $0.56 | $0.08 | 600.0% | | Diluted EPS | $0.24 | $0.08 | 200.0% | $0.55 | $0.08 | 587.5% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for Arm Holdings plc significantly increased for both the three and nine months ended December 31, 2024, primarily driven by strong net income Condensed Consolidated Statements of Comprehensive Income Highlights | Metric (in millions) | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $252 | $87 | $582 | $82 | | Foreign currency translation adjustments | $(40) | $23 | $(16) | $13 | | Net change of effective portion of hedges | $(25) | $13 | $(10) | $(1) | | Total comprehensive income (loss) | $187 | $123 | $556 | $94 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2024, Arm Holdings plc's total assets increased, accompanied by decreased liabilities and increased shareholders' equity, strengthening its financial position Condensed Consolidated Balance Sheet Highlights | Metric (in millions) | As of Dec 31, 2024 | As of Mar 31, 2024 | | :-------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $2,036 | $1,923 | | Short-term investments | $635 | $1,000 | | Total current assets | $4,334 | $4,197 | | Total assets | $8,496 | $7,927 | | Total current liabilities | $874 | $1,505 | | Total liabilities | $2,077 | $2,632 | | Total shareholders' equity | $6,419 | $5,295 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity significantly increased to **$6,419 million** as of December 31, 2024, driven by net income and share-based compensation Condensed Consolidated Statements of Shareholders' Equity Highlights (Nine Months Ended Dec 31, 2024) | Metric (in millions) | Balance as of Mar 31, 2024 | Net income (loss) | Share-based compensation cost | Foreign currency translation adjustments | Balance as of Dec 31, 2024 | | :------------------------------------ | :------------------------- | :---------------- | :---------------------------- | :--------------------------------------- | :------------------------- | | Additional Paid-in Capital | $2,171 | — | $627 | — | $2,739 | | Accumulated Other Comprehensive Income| $371 | — | — | $(16) | $345 | | Retained Earnings | $2,751 | $582 | — | — | $3,333 | | Total Shareholders' Equity | $5,295 | $582 | $627 | $(16) | $6,419 | - Share-based compensation cost recognized for the nine months ended December 31, 2024, was **$627 million**[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased for the nine months ended December 31, 2024, while investing activities shifted to a net cash provision, and financing outflows increased Condensed Consolidated Statements of Cash Flows Highlights | Metric (in millions) | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used for) operating activities | $139 | $423 | | Net cash provided by (used for) investing activities | $153 | $(346) | | Net cash provided by (used for) financing activities | $(175) | $(87) | | Net increase (decrease) in cash and cash equivalents | $113 | $(3) | | Cash and cash equivalents at end of period | $2,036 | $1,551 | - Net cash provided by operating activities decreased by **$284 million** for the nine months ended December 31, 2024, primarily due to changes in working capital[30](index=30&type=chunk)[231](index=231&type=chunk) - Net cash provided by investing activities increased by **$499 million**, shifting from a net use to a net provision of cash, mainly due to increased proceeds from short-term investment maturities[30](index=30&type=chunk)[232](index=232&type=chunk) - Net cash used for financing activities increased by **$88 million**, primarily due to higher payments of withholding tax on vested shares[30](index=30&type=chunk)[233](index=233&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section details Arm's significant accounting policies, financial statement components, and various commitments and contingencies [Note 1 - Description of Business and Summary of Significant Accounting Policies](index=13&type=section&id=1%20-%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) Arm Holdings plc is a global leader in the semiconductor industry, licensing microprocessors and related IP, and is evaluating new accounting pronouncements - Arm Holdings plc is a global leader in the semiconductor industry, licensing microprocessors, systems IP, GPUs, and associated software and services[35](index=35&type=chunk) - A corporate reorganization was completed in September 2023, where Arm Limited became a wholly owned subsidiary of Arm Holdings plc[36](index=36&type=chunk) - The company is evaluating the impact of new accounting standards (ASU 2023-07, ASU 2023-09, ASU 2024-03) and SEC climate-related disclosure rules[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) [Note 2 - Balance Sheet Components](index=15&type=section&id=2%20-%20Balance%20Sheet%20Components) This note provides a detailed breakdown of specific balance sheet components, including prepaid expenses, accrued compensation, and other current liabilities Prepaid Expenses and Other Current Assets (in millions) | Component | As of Dec 31, 2024 | As of Mar 31, 2024 | | :-------------------------------------- | :----------------- | :----------------- | | Research and development tax credit receivables | $100 | $68 | | Prepayments | $71 | $49 | | Other receivables | $41 | $40 | | Total | $212 | $157 | Accrued Compensation and Benefits (in millions) | Component | As of Dec 31, 2024 | As of Mar 31, 2024 | | :-------------------------------------- | :----------------- | :----------------- | | Accrued bonus, commissions, and cash awards | $19 | $190 | | Accrued vacation and sabbatical | $84 | $83 | | Accrued salaries and fringe benefits | $11 | $25 | | Total | $114 | $298 | Other Current Liabilities (in millions) | Component | As of Dec 31, 2024 | As of Mar 31, 2024 | | :-------------------------------------- | :----------------- | :----------------- | | Employee related payroll taxes and payables | $156 | $674 | | Accrued expenses and fees | $111 | $83 | | Electronic design automation liabilities | $53 | $40 | | Trade payables | $70 | $26 | | Customer deposits | $12 | $7 | | Finance lease liabilities | $10 | $5 | | Total | $412 | $835 | [Note 3 - Revenue](index=15&type=section&id=3%20-%20Revenue) Arm's revenue streams consist of license and other revenue and royalty revenue, disaggregated by customer type and geographic region, showing significant growth - License and Other Revenue includes IP licenses (recognized at point-in-time or ratably), software sales (upon delivery), professional services (over time or ratably), and support and maintenance (straight-line over period)[49](index=49&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - Royalty Revenue is recognized on an accrual basis in the quarter customers ship products incorporating Arm's IP, estimated using historical sales trends, macroeconomic factors, and third-party data[55](index=55&type=chunk) Disaggregated Revenue (in millions) | Category | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :----------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | License and Other Revenue| $403 | $354 | $1,205 | $1,017 | | Royalty Revenue | $580 | $470 | $1,561 | $1,288 | | Total Revenue | $983 | $824 | $2,766 | $2,305 | | External Customers | $698 | $576 | $2,165 | $1,755 | | Related Parties | $285 | $248 | $601 | $550 | Revenue by Geographic Region (in millions) | Region | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $305 | $387 | $1,155 | $1,010 | | PRC | $243 | $206 | $564 | $525 | | Taiwan | $169 | $100 | $439 | $381 | | Republic of Korea | $99 | $50 | $238 | $157 | | Other countries | $167 | $81 | $370 | $232 | | Total | $983 | $824 | $2,766 | $2,305 | [Note 4 - Equity Investments](index=20&type=section&id=4%20-%20Equity%20Investments) Arm's equity investments include fair value and equity method investments, with income significantly increasing due to fair value gains from Raspberry Pi Holdings plc's public listing Equity Investments Breakdown (in millions) | Component | As of Dec 31, 2024 | As of Mar 31, 2024 | | :---------------------------------------- | :----------------- | :----------------- | | Equity method investments under fair value option | $557 | $573 | | Equity investment in publicly listed company | $127 | — | | Equity method investments under equity method | $11 | $11 | | Non-marketable equity securities | $150 | $157 | | Total equity investments | $845 | $741 | Income (Loss) from Equity Investments, Net (in millions) | Component | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Equity investment in publicly listed company | $43 | — | $72 | — | | Equity method investments | $(5) | $(1) | $(17) | $(15) | | Non-marketable equity securities | $1 | — | $(2) | $2 | | Total income (loss) from equity investments, net | $39 | $(1) | $53 | $(13) | - The company recognized fair value gains of **$43.0 million** (3M) and **$71.9 million** (9M) from its equity investment in Raspberry Pi Holdings plc, which became publicly listed in June 2024[77](index=77&type=chunk) [Note 5 - Financial Instruments](index=23&type=section&id=5%20-%20Financial%20Instruments) This note details the company's loans and other receivables, including impaired loans to related parties and a convertible promissory note measured at fair value Loans and Other Receivables Carried at Amortized Cost, Net (in millions) | Component | As of Dec 31, 2024 | As of Mar 31, 2024 | | :---------------------------------------- | :----------------- | :----------------- | | Loans receivable | $27 | $26 | | Other receivables | $12 | $12 | | Allowance for current expected credit losses | $(20) | $(19) | | Loans and other receivables carried at amortized cost, net | $19 | $19 | - Loans receivable from Arduino SA (**$16.5 million**) and Cerfe Labs, Inc. (**$3.2 million**) were fully impaired as of December 31, 2024[86](index=86&type=chunk) - The outstanding balance of the convertible promissory note with Ampere was **$33.4 million** as of December 31, 2024, measured at fair value[89](index=89&type=chunk) [Note 6 - Derivatives](index=23&type=section&id=6%20-%20Derivatives) Arm uses foreign currency forward contracts to hedge against foreign currency risk, with notional value decreasing and derivative liabilities increasing from March 2024 to December 2024 - The company uses foreign currency forward contracts to mitigate exposure to foreign currency risk, specifically for GBP-denominated cash flows[90](index=90&type=chunk) Notional Amounts of Outstanding Derivative Instruments (in millions) | Instrument | As of Dec 31, 2024 | As of Mar 31, 2024 | | :------------------------------ | :----------------- | :----------------- | | Foreign currency forward contracts | $425 | $919 | Fair Value of Outstanding Derivative Instruments (in millions) | Instrument | As of Dec 31, 2024 (Assets) | As of Mar 31, 2024 (Assets) | As of Dec 31, 2024 (Liabilities) | As of Mar 31, 2024 (Liabilities) | | :------------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Foreign currency forward contracts | — | $4 | $12 | $4 | [Note 7 - Fair Value](index=25&type=section&id=7%20-%20Fair%20Value) Arm classifies financial instruments into a three-level fair value hierarchy, with significant Level 3 measurements for equity investments and convertible loans using various valuation approaches Fair Value Hierarchy for Assets and Liabilities (in millions) - As of Dec 31, 2024 | Category | Level 1 | Level 2 | Level 3 | Total | | :---------------------------- | :------ | :------ | :------ | :---- | | **Financial Assets:** | | | | | | Money market funds | $1,763 | — | — | $1,763| | Short-term investments | $635 | — | — | $635 | | Equity investments | $127 | — | $453 | $580 | | Convertible loans receivable | — | — | $33 | $33 | | Foreign currency forward contracts | — | — | — | — | | **Total Financial Assets** | $2,525 | — | $486 | $3,011| | **Financial Liabilities:** | | | | | | Foreign currency forward contracts | — | $12 | — | $12 | | **Total Financial Liabilities** | — | $12 | — | $12 | - Equity method investments (Acetone Limited and Ampere) are classified within Level 3, valued using market-calibration, discounted cash flow, or PWER approaches[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - The Ampere convertible loan is a Level 3 financial asset, valued using a probability-weighted discounted cash flows model[108](index=108&type=chunk) [Note 8 - Shareholders' Equity](index=29&type=section&id=8%20-%20Shareholders'%20Equity) The Employee Benefit Trust (EBT) was established in September 2023 to facilitate share-based compensation settlement, holding a nominal number of ADSs as of December 31, 2024 - The Employee Benefit Trust (EBT) was established in September 2023 to facilitate efficient settlement of share-based compensation[114](index=114&type=chunk) - As of December 31, 2024, the EBT held a nominal number of ADSs, compared to **1 million** ADSs as of March 31, 2024, with a market value of **$0.5 million** and **$75.4 million**, respectively[114](index=114&type=chunk) [Note 9 - Share-based Compensation](index=29&type=section&id=9%20-%20Share-based%20Compensation) Arm grants RSUs and PSUs, including new PSUs with Relative TSR, and adopted an ESPP, with total pre-tax share-based compensation cost for the nine months ended December 31, 2024, at **$627 million** - RSUs and PSUs are granted to employees and directors, with compensation expensed over the vesting term[115](index=115&type=chunk) - PSUs with Relative Total Shareholder Return (TSR) as a performance measure were granted for the first time during the nine months ended December 31, 2024[117](index=117&type=chunk) - The 2024 Employee Stock Purchase Plan (ESPP) was adopted in August/September 2024, allowing eligible employees to purchase shares at a discount[118](index=118&type=chunk)[119](index=119&type=chunk) Pre-tax Share-based Compensation Cost (in millions) | Category | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of sales | $7 | $8 | $20 | $34 | | Research and development | $154 | $142 | $437 | $594 | | Selling, general and administrative | $66 | $49 | $170 | $247 | | Total pre-tax cost | $227 | $199 | $627 | $875 | [Note 10 - Income Taxes](index=32&type=section&id=10%20-%20Income%20Taxes) Arm Holdings plc reported an income tax expense of **$(16) million** for the three months and a **$6 million** benefit for the nine months ended December 31, 2024, with a significantly decreased effective tax rate Income Tax Benefit (Expense) and Effective Rate | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax benefit (expense) (in millions) | $(16) | $(59) | $6 | $(72) | | Effective tax rate | (6.0)% | (40.4)% | 1.0% | (46.8)% | - The decrease in effective tax rate was primarily due to windfall tax benefits associated with share-based compensation and a **$25 million** contingency release from a tax inquiry resolution[131](index=131&type=chunk)[134](index=134&type=chunk) - The effective rate differed from the U.K. statutory rate of **25%** due to patent box, R&D tax credits, and the tax impact of share-based compensation[132](index=132&type=chunk) [Note 11 - Net Income (Loss) Per Share](index=34&type=section&id=11%20-%20Net%20Income%20(Loss)%20Per%20Share) This note provides the reconciliation of basic and diluted net income per share, showing significant increases for the periods ended December 31, 2024 Net Income (Loss) Per Share Reconciliation (in millions, except per share amounts) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $252 | $87 | $582 | $82 | | Weighted average ordinary shares outstanding (Basic) | 1,052 | 1,027 | 1,049 | 1,026 | | Weighted average ordinary shares outstanding (Diluted) | 1,064 | 1,049 | 1,062 | 1,040 | | Net income (loss) per ordinary share - Basic | $0.24 | $0.08 | $0.56 | $0.08 | | Net income (loss) per ordinary share - Diluted | $0.24 | $0.08 | $0.55 | $0.08 | [Note 12 - Commitments and Contingencies](index=35&type=section&id=12%20-%20Commitments%20and%20Contingencies) Arm is involved in legal proceedings, reversed a **$40 million** litigation liability in 2023, and guarantees a **$5.2 million** credit facility for Arduino SA - Management does not believe the ultimate resolution of any pending legal matters is reasonably possible to have a material adverse effect on the company's financial position, results of operations or cash flows[137](index=137&type=chunk) - A **$40.0 million** liability for litigation was reversed in the nine months ended December 31, 2023, due to a settlement agreement[138](index=138&type=chunk) - Arm is a guarantor for a **$5.2 million** credit facility available to Arduino SA, expiring in February 2026[139](index=139&type=chunk) [Note 13 - Related Party Transactions](index=35&type=section&id=13%20-%20Related%20Party%20Transactions) Arm has significant related party transactions with Arm China, SoftBank Group affiliates, and other equity investees, including impaired loans to Arduino and Cerfe Labs, Inc Revenue and Expenses with Arm China (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue from IPLA with Arm China | $232.9 | $202.5 | $503.2 | $503.4 | | Expenses under service share arrangement with Arm China | $13.9 | $24.1 | $45.3 | $57.7 | - As of December 31, 2024, Arm had a net receivable of **$272.5 million** from Arm China and contract liabilities of **$105.1 million**[142](index=142&type=chunk) - For the nine months ended December 31, 2024, Arm recognized **$16.0 million** for expected credit losses related to Arm China[143](index=143&type=chunk) - Revenue from licensing and servicing arrangements with a SoftBank Group affiliate was **$51.1 million** (3M) and **$94.3 million** (9M) for the periods ended December 31, 2024[147](index=147&type=chunk) - Loans to related parties, Arduino SA (**$16.5 million**) and Cerfe Labs, Inc. (**$3.2 million**), remain fully impaired as of December 31, 2024[156](index=156&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Arm's business model, key operating factors, financial results, liquidity, and critical accounting estimates [Overview](index=38&type=section&id=Overview) Arm Holdings plc is a global leader in the semiconductor industry, designing and licensing high-performance, energy-efficient compute platforms widely adopted across various devices - Arm architects, develops, and licenses high-performance, low-cost, and energy-efficient compute platforms[160](index=160&type=chunk) - Primary product offerings are CPU products, complemented by GPUs, System IP, and compute platforms[160](index=160&type=chunk) - Arm's development tools and software ecosystem have solidified its position as the world's most widely adopted processor architecture[160](index=160&type=chunk) [Our Business Model](index=39&type=section&id=Our%20Business%20Model) Arm operates a flexible licensing and royalty business model, offering various licensing agreements and collecting per-unit royalties on shipped Arm-based chips - Arm's business model involves licensing products for a fee and receiving per-unit royalties on shipped Arm-based chips[162](index=162&type=chunk) - Arm Total Access agreements license a portfolio of CPU designs and related technologies, including latest products, for an annual fee[165](index=165&type=chunk)[191](index=191&type=chunk) - Arm Flexible Access agreements license a portfolio of CPU designs and related technologies, excluding latest products, for an annual fee plus a single-use license fee at 'tape out'[165](index=165&type=chunk)[190](index=190&type=chunk) - Technology Licensing Agreements (TLA) license a single CPU design or technology for a fixed license fee[165](index=165&type=chunk) - Architecture License Agreements (ALA) allow licensees to develop their own customized CPU designs compliant with the Arm instruction set architecture for a fixed fee[165](index=165&type=chunk) - Royalty fees are based on the average selling price or a fixed amount per chip, typically reducing over time with increased volume[165](index=165&type=chunk)[194](index=194&type=chunk) [Key Factors and Trends Affecting Our Operating Results](index=39&type=section&id=Key%20Factors%20and%20Trends%20Affecting%20Our%20Operating%20Results) Arm's operating results are influenced by semiconductor demand, market share in high-growth areas, value per chip, design wins, Arm China relationship, export controls, macroeconomic conditions, and R&D investment - Growth is dependent on sustained demand for semiconductor chips, which are essential components in consumer, enterprise, and automotive electronics[164](index=164&type=chunk)[166](index=166&type=chunk) - Operating performance relies on maintaining market share in smartphones and consumer electronics, and growing market share in cloud computing, automotive, and IoT[168](index=168&type=chunk) - Ability to provide more value per chip through advanced products and comprehensive packages (e.g., Arm's Compute Subsystems) is expected to drive higher royalty rates[169](index=169&type=chunk) - Increasing design wins with existing and prospective customers, facilitated by flexible licensing options, is a key measure of success and driver of recurring royalty revenue[170](index=170&type=chunk) - Performance of Arm China, a related party, significantly impacts total revenue, with revenue calculated as a percentage of license and royalty fees earned by Arm China[171](index=171&type=chunk)[172](index=172&type=chunk) - New U.S. export control regulations (e.g., AI Diffusion Rule, Additional Due Diligence Measures Rule) may reduce the ability to license products to entities in designated countries and impact commercial relationships[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - Macroeconomic uncertainty, geopolitical events (e.g., U.S.-PRC trade, Ukraine war, Middle East conflicts, Taiwan tensions), and supply chain disruptions continue to affect operating performance[177](index=177&type=chunk)[178](index=178&type=chunk) - Continued significant investment in research and development is critical for developing new applications, enhancing existing products, and expanding into new technologies like AI[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) [Recent Events and Transactions](index=42&type=section&id=Recent%20Events%20and%20Transactions) Arm is experiencing increased public company expenses and significant share-based compensation, while also involved in ongoing litigation with Qualcomm and Nuvia regarding license agreements - Public company expenses are increasing due to enhanced compliance, governance functions, and internal controls[182](index=182&type=chunk) - Share-based compensation is an important part of the future compensation strategy and a significant component of future expenses[183](index=183&type=chunk) - Ongoing litigation with Qualcomm and Nuvia involves alleged breach of license agreements and trademark infringement; a jury failed to reach a complete verdict in December 2024[184](index=184&type=chunk)[185](index=185&type=chunk) - Qualcomm filed a new action against Arm in April 2024, asserting claims of failure to satisfy certain delivery actions, which Arm intends to vigorously defend against[186](index=186&type=chunk) [Components of Results of Operations](index=43&type=section&id=Components%20of%20Results%20of%20Operations) This section defines the key components of Arm's income statement, including revenue disaggregation, cost of sales, operating expenses (R&D, SG&A, restructuring), and non-operating items - Total revenue is comprised of License and Other Revenue (licensing, software, design services, training, support) and Royalty Revenue (per-chip royalties)[187](index=187&type=chunk)[188](index=188&type=chunk)[194](index=194&type=chunk) - Cost of sales primarily includes costs of technical support, training, employee-related expenses, and project costs for professional services[197](index=197&type=chunk) - Research and development expenses are significant investments in new products and technologies, driven by employee-related expenses and project costs[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Selling, general and administrative expenses cover sales, marketing, corporate functions, employee-related expenses, and professional services[202](index=202&type=chunk) - Disposal, restructuring and other operating expenses include transaction costs, employee termination benefits, and contract termination costs[203](index=203&type=chunk)[204](index=204&type=chunk) - Non-operating items include income/loss from equity investments, interest income, other non-operating income/loss (e.g., derivative fair value changes, FX gains/losses), and income tax benefit/expense[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[209](index=209&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Arm Holdings plc demonstrated strong financial performance for the three and nine months ended December 31, 2024, with increased revenue and net income driven by growth in both license and royalty revenues and favorable non-operating items [Total Revenue](index=47&type=section&id=Total%20revenue) Total revenue increased by **19%** to **$983 million** for the three months and by **20%** to **$2,766 million** for the nine months ended December 31, 2024, driven by higher royalty rates and smartphone market recovery Total Revenue Performance (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :----------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | License and Other Revenue| $403 | $354 | 14% | $1,205 | $1,017 | 18% | | Royalty Revenue | $580 | $470 | 23% | $1,561 | $1,288 | 21% | | Total Revenue | $983 | $824 | 19% | $2,766 | $2,305 | 20% | - Royalty revenue growth was driven by an improved mix of products with higher royalty rates per chip, such as Armv9 technology, and recovery of the smartphone market[213](index=213&type=chunk) - Revenue from external customers increased by **21%** (3M) and **23%** (9M), while revenue from related parties increased by **15%** (3M) and **9%** (9M)[214](index=214&type=chunk) [Cost of Sales](index=48&type=section&id=Cost%20of%20sales) Cost of sales decreased by **22%** to **$28 million** for the three months and by **18%** to **$93 million** for the nine months ended December 31, 2024, primarily due to reduced professional and design services and lower share-based compensation costs Cost of Sales Performance (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :------------ | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Cost of sales | $(28) | $(36) | (22)% | $(93) | $(113) | (18)% | - The decrease in cost of sales was primarily due to reduced activities in professional and design services and lower share-based compensation costs[216](index=216&type=chunk) [Research and Development](index=48&type=section&id=Research%20and%20development) Research and development expenses increased by **23%** to **$533 million** for the three months and by **9%** to **$1,525 million** for the nine months ended December 31, 2024, driven by investments in next-generation products and headcount growth Research and Development Expenses (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Research and development | $(533) | $(432) | 23% | $(1,525) | $(1,395) | 9% | - The increase was primarily due to investments in next-generation products, including higher salaries from headcount growth, engineering expenses (e.g., cloud services), and share-based compensation costs[217](index=217&type=chunk) - The increase was partially offset by higher research and development tax credits[217](index=217&type=chunk) [Selling, General and Administrative](index=48&type=section&id=Selling,%20general%20and%20administrative) Selling, general and administrative expenses increased by **14%** to **$247 million** for the three months and by **4%** to **$727 million** for the nine months ended December 31, 2024, influenced by share-based compensation, headcount, and a prior-year litigation reversal Selling, General and Administrative Expenses (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Selling, general and administrative | $(247) | $(216) | 14% | $(727) | $(702) | 4% | - The three-month increase was primarily due to higher share-based compensation costs, salaries from headcount growth, and professional service expenses[218](index=218&type=chunk) - The nine-month increase was primarily due to the reversal of a **$40 million** litigation liability in the prior year, partially offset by decreases in share-based compensation and public company readiness costs[138](index=138&type=chunk)[218](index=218&type=chunk) [Disposal, Restructuring and Other Operating Expenses, Net](index=48&type=section&id=Disposal,%20restructuring%20and%20other%20operating%20expenses,%20net) Disposal, restructuring and other operating expenses, net, decreased by **100%** for both the three and nine months ended December 31, 2024, due to non-recurring contract termination costs from the prior year Disposal, Restructuring and Other Operating Expenses, Net (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Disposal, restructuring and other operating expenses, net | — | $(6) | (100)% | — | $(6) | (100)% | - The decrease was due to contract termination costs in December 2023 that did not occur in the current periods[219](index=219&type=chunk) [Income (Loss) from Equity Investments, Net](index=50&type=section&id=Income%20(loss)%20from%20equity%20investments,%20net) Income from equity investments, net, increased significantly by **$40 million** for the three months and **$66 million** (**508%**) for the nine months ended December 31, 2024, primarily due to unrealized gains from a publicly listed equity investment Income (Loss) from Equity Investments, Net (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Income (loss) from equity investments, net | $39 | $(1) | nm | $53 | $(13) | 508% | - The increase was primarily due to unrealized gains related to an equity investment in a publicly listed company (Raspberry Pi), partially offset by unrealized losses from equity method investments[221](index=221&type=chunk) [Interest Income, Net](index=50&type=section&id=Interest%20income,%20net) Interest income, net, remained flat at **$28 million** for the three months ended December 31, 2024, but increased by **11%** to **$89 million** for the nine months, driven by higher average cash and short-term investment balances Interest Income, Net (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :------------------ | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Interest income, net | $28 | $28 | 0% | $89 | $80 | 11% | - The nine-month increase was primarily due to higher average cash and short-term investment balances[222](index=222&type=chunk) [Other Non-Operating Income (Loss), Net](index=50&type=section&id=Other%20non-operating%20income%20(loss),%20net) Other non-operating income (loss), net, increased significantly by **$41 million** (**273%**) for the three months and **$15 million** (**750%**) for the nine months ended December 31, 2024, primarily due to realized and unrealized foreign exchange gains Other Non-Operating Income (Loss), Net (in millions) | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Other non-operating income (loss), net | $26 | $(15) | (273)% | $13 | $(2) | (750)% | - The increase was primarily due to realized and unrealized foreign exchange gains[223](index=223&type=chunk) [Income Tax Benefit (Expense)](index=50&type=section&id=Income%20tax%20benefit%20(expense)) Income tax benefit (expense) changed significantly, with a **$(16) million** expense for the three months and a **$6 million** benefit for the nine months ended December 31, 2024, primarily due to windfall tax benefits and a contingency release Income Tax Benefit (Expense) and Effective Rate | Metric | 3 Months Ended Dec 31, 2024 | 3 Months Ended Dec 31, 2023 | % Change | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | % Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Income tax benefit (expense) (in millions) | $(16) | $(59) | (73)% | $6 | $(72) | (108)% | | Effective tax rate | (6.0)% | (40.4)% | | 1.0% | (46.8)% | | - The changes were primarily due to windfall tax benefits associated with share-based compensation and the release of a tax inquiry contingency[224](index=224&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) Arm's liquidity is supported by **$2,036 million** in cash and equivalents and **$635 million** in short-term investments, with operating cash flow decreasing, investing activities providing cash, and financing outflows increasing - As of December 31, 2024, Arm had **$2,036 million** in cash and cash equivalents and **$635 million** in short-term investments[227](index=227&type=chunk) - Government research grants and tax credits provided **$106 million** for the nine months ended December 31, 2024[227](index=227&type=chunk) Cash Flow Activities (in millions) | Activity | 9 Months Ended Dec 31, 2024 | 9 Months Ended Dec 31, 2023 | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used for) operating activities | $139 | $423 | | Net cash provided by (used for) investing activities | $153 | $(346) | | Net cash provided by (used for) financing activities | $(175) | $(87) | - Net cash from operating activities decreased by **$284 million**, primarily due to changes in working capital, including increased accounts receivable and other liabilities[231](index=231&type=chunk) - Net cash from investing activities increased by **$499 million**, mainly due to a **$369 million** increase in proceeds from short-term investment maturities[232](index=232&type=chunk) - Net cash used for financing activities increased by **$88 million**, primarily due to a **$64 million** increase in payments of withholding tax on vested shares[233](index=233&type=chunk) [Critical Accounting Estimates](index=54&type=section&id=Critical%20Accounting%20Estimates) Arm's financial statements rely on significant accounting policies and estimates, with no material changes occurring during the nine months ended December 31, 2024 - Significant accounting policies and estimates include revenue recognition, valuation of equity investments at fair value, ordinary share valuations, share-based compensation, impairment of goodwill, and income taxes[236](index=236&type=chunk) - No material changes to these policies or estimates occurred during the nine months ended December 31, 2024, other than those outlined in Note 1[237](index=237&type=chunk) [Signature](index=55&type=section&id=Signature) This section contains the authorized signature for the Form 6-K report [Authorized Signature](index=55&type=section&id=Authorized%20Signature) The report was duly signed on February 5, 2025, by Laura Bartels, Chief Accounting Officer of Arm Holdings plc - The report was signed by Laura Bartels, Chief Accounting Officer, on February 5, 2025[241](index=241&type=chunk)

Core Viewpoint - Arm Holdings plc (ARM) has experienced a significant stock rally of 20% over the past month, outperforming the industry average of 13%, driven by excitement around advanced AI software and hardware, alongside monitoring of global economic conditions [1][3]. Group 1: Company Position and Strengths - Arm Holdings has a dominant presence in the semiconductor industry, particularly in mobile devices, with a low-power architecture that has been a staple for decades, serving major manufacturers like Apple, Samsung, and Qualcomm [4]. - The company is well-positioned to benefit from the growth of AI and IoT, as ARM-powered chips are increasingly integrated into smart devices, autonomous systems, and data centers, addressing the computational needs of AI workloads [5]. - Arm's licensing model allows it to earn royalties on chip designs without significant capital expenditure, providing a steady revenue stream and maintaining relevance in various sectors [6]. Group 2: Financial Strength and Growth Potential - Following its IPO, Arm Holdings has strengthened its balance sheet, holding $2.4 billion in cash with no debt, which enhances its ability to fund R&D, pursue acquisitions, and expand market presence [7][8]. - The Zacks Consensus Estimate projects ARM's fiscal 2025 earnings to grow by 22.8% year-over-year, with further growth of 32% expected in fiscal 2026 [10]. - Sales are anticipated to rise by 21.9% in fiscal 2025 and 25.9% in fiscal 2026, indicating strong revenue growth potential [13]. Group 3: Valuation and Market Sentiment - ARM's stock is currently valued at approximately 74.67 times forward 12-month earnings per share, significantly higher than the industry average of 38.84 times, indicating elevated valuation levels [15]. - The trailing 12-month EV-to-EBITDA ratio for ARM is around 223.89 times, far exceeding the industry's average of 8.61 times, suggesting that the stock may be overvalued [15]. - Given the current valuation, it may be prudent for investors to wait for a more attractive entry point before purchasing ARM stock, despite the company's strong market position [16][18].

This planned $500 billion AI infrastructure investment could mint a few big winners.Among the biggest market drivers over the past couple of years have been the developments in the artificial intelligence (AI) industry. In simplest terms, AI's advanced algorithms can be deployed to streamline and automate many time-consuming tasks, freeing up people for higher-level work. As a result, many believe that generative AI will spark a wave of productivity growth, creating windfall profits for the companies that m ...

Group 1 - Arm Holdings' stock increased by 8.9% this week, reaching a peak of 13% earlier, coinciding with gains in the S&P 500 and Nasdaq 100 [1] - The announcement of Project Stargate, which aims to inject $500 billion into the AI industry, has positively impacted AI stocks, particularly benefiting Arm due to its relationship with Oracle [2][3] - Arm's CEO discussed the company's potential benefits from Project Stargate on CNBC, highlighting investor interest in Arm [3] Group 2 - Arm plans to significantly increase licensing fees for its technology, which is expected to enhance its profitability [4] - The company is exploring the production of its own AI chips, a move that could be highly lucrative and is currently not part of its operations [4]