Arm Holdings (ARM) is set to report its Q4 earnings results on May 6. Analysts expect EPS of $0.58, which is slightly above last year’s $0.55, and revenue of $1.47 billion. At the same time, Wall Street expectations have been increasing as several analysts raised their price targets. For instance, Susquehanna raised its price target to $210 from $170 and kept a Buy rating. In addition, Wells Fargo (WFC) lifted its target to $220 from $175, while Morgan Stanley (MS) raised its target to $191 from $150, although it kept a Hold rating.
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The main question investors should be asking is whether Arm’s AI and cloud growth can offset weaker smartphone-related royalties. Susquehanna expects Arm-based CPU royalties to help cushion that weakness, while longer-term AI and AGI demand could expand Arm’s market opportunity and potentially lead to EPS that will stay above $10 over the next several years.
Morgan Stanley also expects cloud AI to support royalty growth and sees another strong licensing quarter. This is important because Arm’s last report saw record royalties, data center royalty growth of more than 100% year-over-year, and licensing growth that was helped by rising contract value.
ARM Stock Risks
Even so, ARM is not without risk. Wells Fargo still likes Arm’s long-term AI position but warned that the stock’s recent move could itself be a headwind. One concern is that management may only repeat its 2027 revenue outlook, which is already close to Wall Street’s expectation for about 20% year-over-year growth. As a result, investors may need more than a simple earnings beat. Instead, they will likely be looking for clear signs that AI royalties, cloud demand, and licensing momentum are strong enough to support Arm’s higher valuation.
Options Traders Anticipate a Large Move
Using TipRanks’ Options tool, we can see what options traders are expecting from the stock immediately after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. If this sounds complicated, don’t worry, the Options tool does this for you. Indeed, it currently says that options traders are expecting a large 11.36% move in either direction.
Is ARM Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on ARM stock based on 19 Buys, four Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ARM price target of $185.67 per share implies 9.6% downside risk.
