Arm Holdings' New Planned Artificial Intelligence (AI) Chip Could Jump-Start Revenue Growth. Is Now the Time to Jump in and Buy the Stock?

Core Insights - Arm Holdings reported strong fiscal Q4 results with a 47% year-over-year revenue increase to $928 million, driven by a 60% surge in license revenue and a 37% rise in royalty revenue [2][3] - The company is set to develop its own AI chips, with plans for a prototype by spring 2024 and mass production by fall 2025, partially funded by SoftBank [6][7] - Arm forecasts revenue growth of 18% to 27% for fiscal year 2025, with adjusted EPS expected to rise from $1.27 in fiscal 2024 to between $1.45 and $1.65 [3][4] Financial Performance - License revenue reached $414 million, while royalty revenue was $514 million, indicating strong demand for Arm's advanced CPU technology [2] - The company added four new Arm Total Access agreements, bringing the total to 31, with over half of its largest customers utilizing this subscription model [2][3] - Armv9-based chips now contribute approximately 20% of royalty revenue, up from 15% the previous year, reflecting a shift towards newer technology [3] Future Outlook - Arm anticipates revenue growth of at least 20% for fiscal years 2026 and 2027, indicating a positive long-term outlook [4] - The company trades at high valuation metrics, with a forward price-to-sales ratio over 30 and a forward P/E multiple of 75, suggesting that investors expect exceptional performance [4] AI Chip Venture - The new AI chip division aims to compete in the growing AI market, with SoftBank negotiating production capacity with semiconductor fabrication companies [6][7] - Arm's collaboration with SoftBank could provide a built-in customer base for its AI chips, although it may lead to competition with existing customers like Nvidia [7][8] - The potential spin-off of the AI chip division into SoftBank could further align the company's strategy with broader data center ambitions [6]