ARM to Post Q3 Earnings: Should the Stock Be in Your Portfolio Now?

Core Insights - Arm Holdings plc (ARM) is set to report its third-quarter fiscal 2026 results on February 4, with earnings expected at 41 cents per share, reflecting a 2.5% year-over-year increase, and revenues projected at $1.24 billion, indicating a 25.7% year-over-year increase [1][5]. Earnings Performance - The company has a strong history of earnings surprises, having exceeded the Zacks Consensus Estimate in all of the last four quarters, with an average earnings surprise of 11.1% [2][3]. - There have been no revisions to the upcoming quarter's earnings estimate in the past 30 days [4]. Revenue Expectations - The expected year-over-year improvement in the company's top line is anticipated to be driven by increases in both Royalty and License revenues, with Royalty revenues estimated at $707 million (a 22% year-over-year decline) and License revenues at $530 million (a 31.5% year-over-year decline) [7]. Stock Performance and Valuation - ARM shares have decreased by 38% over the past three months, yet the stock continues to trade at a high forward price-to-earnings multiple of 48.56x, nearly double the industry average of 26.88, indicating that the stock remains expensive [5][8]. - The company has an Earnings ESP of 0.00% and a Zacks Rank of 3, suggesting a neutral outlook for the upcoming earnings report [6]. Strategic Positioning - Arm Holdings has evolved from a traditional chip designer to a key player in energy-efficient AI computing, with its RISC-based architecture providing superior performance per watt, which is crucial as AI scales under power constraints [10]. - The company benefits from a self-reinforcing ecosystem that connects developers and hardware makers, enhancing software compatibility and adoption speed [11]. - Competitive dynamics show that while NVIDIA competes with Arm in edge and AI workloads, it lacks the mobile scale that Arm possesses, and Qualcomm remains closely tied to Arm through its mobile chip designs [11]. Investment Considerations - Arm Holdings is recognized as a high-quality company with significant exposure to long-term AI and computing trends, but the current valuation limits upside potential, suggesting that investors may want to wait for a more favorable entry point [13].