In 2025, the world’s leading chip designer should benefit from its partnership with Nvidia.
Shares of Arm Holdings (ARM 0.57%), the world’s largest designer of architectures for central processing unit (CPU) chips, gained 64.2% in 2024. For context, the S&P 500 index and the tech-heavy Nasdaq Composite index returned 25% and 29.6%, respectively, last year. (In 2025, Arm stock is up 17.6% through Wednesday, Jan. 8.)
In 2024, Arm’s main growth driver was powerful demand for artificial intelligence (AI) capabilities. The company’s revenue comes from licensing its intellectual property (IP) to semiconductor (chip) companies and manufacturers of consumer and industrial electronic products, and royalties on products sold that use its IP. It has long dominated the smartphone market, but more recently has been making strong inroads into high-growth markets, including the AI-driven data center market.
Data by YCharts.
Arm stock was up 118% in the first half of 2024
Arm stock skyrocketed 93.4% in the three market days following the company’s Feb. 7 release of its results for the quarter ended Dec. 31, 2023 (fiscal Q3 2024). The company’s results and guidance for the next quarter sped by Wall Street’s consensus estimates.
In the quarter, Arm’s revenue grew 14% year over year, and its adjusted earnings per share (EPS) jumped 32%. Wall Street had been looking for revenue and adjusted EPS growth of 5% and 14%, respectively.
Arm stock’s second big move in 2024 was down. In mid-April, it pulled back 33%. This was due to the broad stock sell-off that hit high-flying tech stocks particularly hard.
Arm stock started its climb back up in May. This climb started after it gained nearly 11% in the three market days following the release of its results for the quarter ended March 31 (fiscal Q4 2024). In the quarter, revenue surged 47% year over year, and adjusted EPS increased by a factor of 18. Both results easily surpassed the analyst consensus estimates, as did management’s guidance for the next quarter.
Arm stock gave back some of its first-half gains in the second half of 2024
In the second half of last year, Arm stock gave back some of the gains it had racked up in the first half. This dynamic was only partly related to the company’s performance, as semiconductor stocks in general struggled during the summer and fall.
On Aug. 1, Arm stock dropped 15.1% following the company’s release on the prior day of its results for the quarter ended on June 30 (fiscal Q1 2025). Shares declined 23.1% in the three market days following the release before they started rebounding. The quarter’s results themselves were excellent: Revenue soared 39% year over year to $939 million, and adjusted EPS rocketed 67% to $0.40. Results comfortably exceeded Wall Street’s expectations.
So what caused the sell-off? A few things. First, the company’s guidance for the next quarter was lighter than Wall Street had expected. Second, investors were disappointed that Arm didn’t raise — but only maintained — its prior annual guidance. This might seem “greedy,” but investors have very high expectations when a company’s stock sports a lofty valuation. Third, the company stopped reporting the total number of Arm-based chips shipped each quarter. This decision made sense given how Arm’s business has evolved, but it was natural for investors to be concerned when the company suddenly ceased reporting a metric it had been sharing.
That brings us to Arm’s quarter ended Sept. 30 (fiscal Q2 2025). Shares drifted down 1.9% in the three market days following the Nov. 6 release. And they continued moving mostly lower through the end of the year.
In the quarter, Arm’s revenue rose 5% year over year to $844 million, and its adjusted EPS fell 17% to $0.30. Results were weak for a good reason, which management had expected, though they still managed to top Wall Street’s expectations. License revenue declined 15% to $330 million due to the “normal fluctuation in timing and size of multiple high-value license agreements,” the company said in the release. On the positive side, royalty revenue grew 23% to $514 million.
Near-term catalyst: Earnings release on Feb. 5
Arm is scheduled to release its results for the third quarter of fiscal 2025 (ended Dec. 31, 2024) on Wednesday, Feb. 5, after the market close. Wall Street is projecting revenue will increase 15% to $947.2 million, and adjusted earnings per share (EPS) will grow 17% year over year to $0.34.
Arm stock is trading at about 73 times forward projected (by Wall Street) earnings, as of the market close on Jan. 8. This is a high valuation, so investors have high expectations.
2025 could be a great year for Arm, thanks in part to its Nvidia partnership
Arm is poised to have a nice new growth driver for the next year or two: sales of Nvidia‘s Grace Blackwell superchips, which integrate Nvidia’s graphics processing units (GPUs) with energy-efficient Arm-based CPUs. Nvidia planned to start rolling out its Blackwell-architecture chips for data centers — which have generated powerful demand — in its current quarter, which ends in late January.
