Arm Holdings (ARM) has had a rocky ride in the market lately, especially after the release of its fiscal Q2 2024 earnings. While the results beat Wall Street expectations, the stock took a bit of a tumble afterward.

In its latest earnings report, Arm showcased a revenue of $844 million, which marked a 5% year-over-year increase and exceeded the anticipated $808 million. The company also reported a net income of $107 million or 10 cents per share, a notable improvement from a loss of $110 million during the same quarter last year. A significant contributor to this growth was a 23% jump in royalty revenue, amounting to $514 million, even as licensing revenue took a hit, falling 15% to $330 million.

However, despite the positive earnings, shares fell over 4% in extended trading due to a cautious outlook. Arm projected revenue for the next quarter to be between $920 million and $970 million, aligning with analyst expectations but leaving some investors wanting more. Additionally, the company’s full-year revenue forecast remained unchanged at $3.8 billion to $4.1 billion, which did not quite meet the more optimistic projections from analysts.

Despite the pullback, analysts still have a positive outlook on ARM‘s future in the booming AI market. JP Morgan’s Harlan Sur shared his enthusiasm for Arm’s progress, saying the company is set up nicely for growth thanks to its innovations in computing subsystems. Evercore ISI’s Mark Lipacis also pointed out that Arm is in a great spot to take advantage of trends in AI, automotive, and IoT.

ARM Has Good Upside Potential With Fair Safety and Timing

VectorVest is a proprietary stock rating system that has outperformed the S&P 500 index by 10x over the past 20 years and counting. It saves you time and stress by giving you all the insight you need in 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).

Each rating sits on a scale of 0.00-2.00, with 1.00 being the average, making interpretation quick and easy. Here’s what you need to know for ARM:

  • Good Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (forecasted 3 years out), AAA corporate bond rates, and risk. ARM has a good RV rating of 1.26, indicating solid potential for growth in the booming AI market.
  • Fair Safety: The RS rating is a risk indicator, computed from an analysis of the company’s financial consistency, debt-to-equity ratio, business longevity, and sales volume. ARM has a fair RS rating of 0.97, reflecting a moderate level of risk as it navigates competitive pressures.
  • Fair Timing: The RT rating analyzes a stock's price trend, calculated day over day, week over week, and year over year. ARM has a fair RT rating of 1.05, suggesting stability in its price movements.

The overall VST rating of 1.10 is fair for ARM, but the stock is currently rated a Hold. Keep an eye on this situation, as any validation of ARM's positive price trend could change things in a hurry. Learn more about this opportunity with a free stock analysis today!

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VectorVest advocates buying safe, undervalued stocks, rising in price. While ARM has shown resilience with its earnings and has potential for future growth, the current stock performance indicates a cautious approach. Investors should keep an eye on upcoming developments in the AI space and the overall semiconductor market dynamics before making any moves.

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