Arm Holdings (ARM) Stronger Guidance and Outlook Expected On The AI Opportunities Capitalizing
$ARM Holdings(ARM)$ is scheduled to release its financial results post-market on 05 February 2025.
Analysts estimate ARM to post revenue of USD 947.12M for 2025 Q3, up 14.94% YOY; EPS is estimated to be USD 0.34, up 92.25% YOY.
Arm Holdings (ARM) Previous Quarter Earnings Call Positive Give 12.11% Gain Since
Since ARM give its previous quarterly earnings call on 06 Nov 2024 which turned out positive, it has given a positive 12.11% change since.
The earnings call for Arm's Q2 2025 was largely positive, with significant growth in royalty revenue and strong demand for Armv9 and CSS licenses. Despite challenges in the industrial sector and ongoing litigation with Qualcomm, the company's outlook remains optimistic with strong guidance for the next quarter and fiscal year.
Arm Holdings (ARM) Result From Capitalizing On AI Opportunities To Watch
During the ARM Q2 2025 earnings call, the company provided robust guidance across several key metrics. ARM reported Q2 total revenue of $844 million, surpassing the top end of their guided range, with royalty revenue reaching $514 million, a 23% year-over-year increase and matching their highest royalty revenue quarter to date.
The company attributed this growth to the continued adoption of Armv9 and the initial deployment of CSS products. For Q3, ARM anticipates revenue between $920 million and $970 million, indicating a 15% year-over-year growth at the midpoint.
ARM reiterated its full fiscal year 2025 guidance, expecting revenue between $3.8 billion and $4.1 billion, reflecting an 18% to 27% year-over-year increase, and non-GAAP operating expenses around $2.05 billion, a 19% increase from the previous year. Additionally, ARM forecasted non-GAAP EPS guidance for the full year to be between $1.45 and $1.65.
The guidance highlights ARM's ongoing success in capitalizing on AI opportunities, expanding its presence in smartphones and automotive markets, and the significant progress in the adoption of Armv9 architecture.
We could be expecting a strong outlook and guidance from ARM as the AI revolution have moved towards inference (closer to the consumers), which ARM business would stand to gain from its expanding presence in smartphones and automotive markets.
Revenue From Royalty and Licensing Remain Key In Upcoming Earnings
Demand Boost From Smartphone Should Create Another Record Royalty Revenue
In the previous quarter, royalty revenue grew 23% year-over-year, reaching $514 million, driven by Armv9 adoption and CSS deployments. Smartphone royalties increased approximately 40% year-over-year despite only a mid-single-digit increase in smartphone shipments.
This should continue to grow as manufacturers are looking to increase the smartphone production with newer technology, and Armv9 adoption should also get a boost.
AI Should Catalyst Strong Licensing Revenue and Demand
Licensing revenue was $330 million, a 15% decline year-over-year but better than the expected 25% decline. Annualized contract value (ACV) in Q2 was up 13% year-over-year. The CSS licenses doubled this year, contributing to a strong pipeline and demand.
With the AI moving into inference as open-sourced LLM have been coming out, now focus on AI development seem to shift.
Ongoing litigation with Qualcomm over architecture license cancellation, impacting potential revenue and increasing legal costs.
A Slow Demand In Data Center and AI Integration Expected
NVIDIA's Grace Blackwell shipments started, integrating NVIDIA GPU Blackwell with Arm CPU in Grace. Microsoft Azure Cobalt and Google GCPx, both Armv9 based, are now generally available, marking significant milestones in data center adoption.
As we have seen how DeepSeek have been able to come up without heavy data center chips, hence I am expecting to see a slow demand for the data center and AI demand.
Continued weakness in the industrial sector due to ongoing inventory correction, affecting growth in this part of the semiconductor industry.
Look Forward To Positive Outlook and Guidance
Guidance for Q3 expects revenue between $920 million and $970 million, representing a 15% year-over-year growth. Full-year revenue is expected between $3.8 billion and $4.1 billion, an 18% to 27% increase year-over-year.
Technical Analysis - Exponential Moving Average (EMA)
Considering how the semiconductor sector have been performing since the launch of DeepSeek, ARM seem to have gained quite well in recent days.
As seen from the EMA chart below,ARM is current trading above the support level of 12-EMA which is around $150, as long as the bulls continue to hold the daily uptrend expansion which have been working pretty well at around $155, I believe we could see a nice upside move after ARM earnings.
What might derail the bulls attempt to continue the daily uptrend could be an increase in its expenses due to the legal case with $Qualcomm(QCOM)$, as for the outlook, $NVIDIA(NVDA)$ blackwell for the data center might also have an impact on ARM as ARM supply the CPU for the Blackwell integration.
I will be monitoring the movement closely as I hold a position in ARM.
Summary
With the semiconductor still not away from what DeepSeek impact could be, ARM could face challenges on its integration with NVDA Blackwell in data center, because the demand for data center chips might slowed down, so what could help ARM might be on the expanding presence in the smartphone and automotive.
With AMD earnings this morning, it does seem like data center sales will be down as mentioned by AMD CEO.
Appreciate if you could share your thoughts in the comment section whether you think ARM could boost their outlook with expanding presence in the smartphone segment as AI inference is the key now.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
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