Core Viewpoint - ARM Holdings, valued at $140 billion, is seen as a prime example of the AI valuation bubble, trading at over 200 times earnings despite only $4 billion in annual revenue and $808 million in GAAP operating profit for FY'25 [4][5] Financial Metrics - ARM's current valuation implies a need for extraordinary growth, requiring revenue to triple to approximately $12.5 billion and GAAP net margins to double to around 40% [12][15] - The company currently operates at 16% GAAP net margins for FY'25 and about 19% over the last 12 months [6] Business Model Challenges - ARM's business model is heavily reliant on R&D, consuming 52% of revenue, which is significantly higher than Nvidia's 9% [7] - Achieving the required margins would necessitate cutting stock-based compensation, risking talent loss and innovation [7] Market Growth Assumptions - The growth narrative for ARM is primarily dependent on the data center market, which is often misunderstood [8] - Most of ARM's data-center revenue comes from low-royalty agreements (3-5%), making it unlikely to achieve the necessary revenue growth without a shift to higher royalty products [9][10] Competitive Landscape - ARM faces competition from RISC-V, an open-source, royalty-free architecture that poses a long-term threat to ARM's pricing power [11] - Major companies like Google, Meta, and Qualcomm are investing in RISC-V, which could diminish the need for ARM's architecture licenses [11] Market Share Goals - ARM aims to capture 50% market share in the data center by 2026/2027, up from about 15% today, which is a significant challenge [15]