Nvidia Divests Arm Stake: Neutral Event Amid Unchanged Growth Risks

What happened

Nvidia has offloaded its stake in Arm Holdings, as disclosed in a recent SEC filing, prompting a minor premarket stock rise. Arm's business model, per the DeepValue report, relies on licensing and royalties, with growth tied to AI and data-center expansion despite handset market headwinds. Nvidia's exit eliminates a potential conflict of interest but does not mitigate Arm's high valuation, customer concentration, or licensing volatility. This move may be spun positively, but investors should see through it to focus on operational challenges like declining RPO and smartphone unit contractions. Ultimately, Arm's stock trajectory depends on tangible progress in royalty growth and CSS adoption, not shareholder changes.

Implication

The divestment does not alter Arm's core business dynamics or reduce its reliance on mobile royalties, which face a forecasted 2026 handset unit decline of -2.1% YoY. Investors must continue monitoring ACV growth and RPO stability as leading indicators for licensing health, with any deceleration signaling increased risk. Arm's elevated P/E of 166x offers no margin of safety, exacerbated by concentration risks and PRC export controls that could hamper data-center ambitions. Quarterly licensing results will drive volatility, making timing critical amidst market sensitivity to optics. Therefore, maintaining a WAIT stance is prudent until Arm demonstrates sustainable royalty growth above 20% YoY and ACV stability.

Thesis delta

No substantive shift in the investment thesis; Arm's WAIT rating remains unchanged. The company must still prove royalty resilience and licensing momentum to justify its premium valuation, with Nvidia's exit being peripheral to these core issues. Monitoring ACV and RPO trends over the next two quarters is essential for any reassessment.