Arm's Strong Growth Still Priced for Perfection; Valuation Remains Full

What happened

Arm just posted its third consecutive year of over 20% revenue growth, with CEO Rene Haas reiterating the company's position as the compute platform for the AI era. The 24/7 Wall Street article aligns with our view that the business is high-quality but the stock is fully priced at around $287. Our latest DeepValue report rates ARM a WAIT with a conviction of 4.0, noting the lack of margin of safety at current multiples (295x P/E, 216x EV/EBITDA). Key uncertainties remain: the timing of AGI CPU revenue recognition, the sustainability of ~20% royalty growth, and smartphone segment weakness. The article does not introduce new information that would change our assessment; it reinforces that investors are paying upfront for AI potential that is not yet fully reflected in reported results.

Implication

Maintain a wait-and-see approach, holding existing positions but not adding at current levels. Trim positions if the stock rises above $330, as downside risk increases. An attractive entry point is around $220, where the margin of safety improves. Monitor November 4, 2026 and February 3, 2027 earnings for royalty growth near 20% and any update on AGI CPU outlook. If management raises the AGI CPU outlook above $1 billion or quantifies data-center royalty contribution, conviction could increase, but until then the risk-reward is balanced.

Thesis delta

No material shift to our thesis. The article highlights Arm's continued strong growth and AI positioning, which we already incorporate in our base case. However, the emphasis on 'full price' aligns with our view that valuation leaves little room for error, reinforcing our WAIT rating.