(June 4): Arm Holdings plc has been a relatively expensive stock for investors to own since the company first issued American depositary receipts (ADRs) in 2023. But a wild surge that has nearly doubled the share price in a matter of weeks is pushing the valuation to levels investors rarely see.
The Cambridge, UK-based chip designer’s ADRs have been hot all year, soaring 277% in 2026, fuelled by enthusiasm for its plans to build its own chips for the first time. It’s outperforming all but two members of the S&P 500 Index, and is the second-best company in the high-flying Philadelphia Stock Exchange Semiconductor Index.
The stock’s latest bout of euphoria came in the wake of a May 15 plunge when Bloomberg News reported that the company was being investigated for antitrust violations by the Federal Trade Commission. Since then, the ADRs have soared 97%, adding US$218 billion to Arm’s market capitalisation. By comparison, the semiconductor index is up roughly 20% in that time, while the S&P 500 has gained just 2%.
“While the fundamentals are very strong, at least in our opinion, the valuation at this point is a key risk because you’re paying for 2030 today,” said Dave Mazza, chief executive officer at Roundhill Investments, which holds Arm ADRs.
The stock is priced at more than 175 times earnings projected over the next 12 months, up from around 51 at the start of the year, and at 68 times projected revenues. Based on net income, they’re more expensive than every stock in the S&P 500 other than Tesla Inc and Live Nation Entertainment Inc. And based on revenue, no one is higher — the closest comparison is Palantir Technologies Inc at 37 times sales.
“A stock like Arm trading so far away from fundamental value, it’s a trickier one,” said Dennis Dick, head trader at Triple D Trading. “Arm for me is probably a no touch here.”
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Arm gets most of its sales from the smartphone industry, where growth has been sluggish. But it’s expanding in the booming artificial intelligence data centre market, where it hopes to capitalise on demand by selling its own chips.
“The bull case entirely rests on sort of this business model being in transition as opposed to anything that’s going to happen in 2026,” Mazza said.
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Arm is targeting US$15 billion in revenue from those chips by the end of the decade, and chief executive officer Rene Haas told Bloomberg Television on Tuesday he’s “very confident” Arm will reach that goal ahead of time. Arm’s revenue in fiscal 2026, which ended in March, was US$4.9 billion. That’s expected to rise to US$6 billion next year and to almost US$8 billion in fiscal 2028.
While the healthy outlook is boosting sentiment for Arm’s growth prospects, it’s all reliant on Big Tech continuing to spend heavily on data infrastructure well into the future. Analysts’ estimates for the company’s revenue in fiscal 2029 have jumped 22% in the past three months, but for the current year they’ve barely budged, according to data compiled by Bloomberg.
That said, investors continue to pile into Arm despite its expensive price and long time horizon.
“This is all momentum,” Dick said. “I’ve been trading professionally for 27 years. This momentum is insane. So when they start going in one direction they just can’t stop.”
A big part of the attraction is its business model. Unlike traditional chipmakers, Arm generates revenue by licensing its semiconductor designs and collects royalties when they’re shipped. It’s an efficient approach that yielded a gross margin of more than 98% in fiscal 2026.
That’s far better than most chipmakers — Nvidia Corp’s gross margin is around 75% — but it’s projected to slow in the coming years to less than 97.7% in fiscal 2027, 92.2% in 2028 and 87.9% in 2029, according to the average of analyst estimates compiled by Bloomberg.
Wall Street has a mixed view of the company based on its operations and the price of its ADRs. While 33 of the 47 analysts tracked by Bloomberg that cover Arm have buy ratings and just two have sells, the average price target of roughly US$259 suggests the shares will fall 37% over the next 12 months.
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“At this point I still think it’s a great company,” Mazza said. “But the stock price itself is getting to a place where you have to question it from an investment point of view.”
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