Down 16%, Should You Buy the Dip on Arm Holdings?

Core Viewpoint - Arm Holdings has experienced a recent decline in stock price but shows signs of recovery, with a significant increase in shares over the past three months, outperforming the Nasdaq Composite index [1][2]. Group 1: Stock Performance and Valuation - Arm's stock is currently down approximately 16% from its all-time high in mid-2024, while the Nasdaq Composite is near its all-time highs [1]. - Over the past three months, Arm's shares have surged by 56%, compared to a 28% increase in the Nasdaq Composite [2]. - The stock is now trading at a more attractive valuation, with a price-to-earnings ratio of 193, significantly lower than its ratio at the end of June 2024 [3][7]. - Analysts expect a forward earnings multiple of 79, indicating anticipated earnings growth [7]. Group 2: Earnings Growth and Market Demand - Arm has demonstrated impressive earnings growth over the past 18 months, contributing to its relatively cheaper valuation [5]. - The demand for Arm's intellectual property (IP) and chip architecture has surged, particularly due to advancements in artificial intelligence (AI) [10]. - There has been a 14x increase in the number of customers using Arm-based chips in data centers over the past four years, with major cloud computing companies adopting its architecture [11]. - The number of applications compatible with Arm-based chips has doubled since 2021, driven by a 1.5x increase in developers creating those applications [12]. Group 3: Market Share and Future Expectations - Arm aims to capture 50% of the data center CPU market by the end of 2025, a significant increase from last year's figures [13]. - The company also targets 50% of the PC CPU market by 2029, representing a sixfold increase compared to last year [14]. - Higher royalty rates for its latest Armv9 architecture have positively impacted Arm's margin profile [14]. - Analysts expect Arm's earnings growth to exceed expectations due to market share gains and increased royalty rates for AI-focused chip designs [18].