Wasteland Capital
Global Markets Investor, US, UK & European Assets
Arm is far too expensive for slowing growth. It trades at 220x earnings and 45x 2026 revenue for about 20% top-line growth, while core royalty growth slowed from 27% last quarter to 11% and margins fell. Its push into data-center CPUs makes it roughly the 35th company launching them, in a market that will compete on price. x.comÂ
Arm Holdings looks unattractive because its nearly 300 P/E ratio is difficult to justify against only 22% year-over-year revenue growth. x.comÂ
Arm's valuation carries an absurd premium for the architecture layer. It trades at 91.9x EV/sales, far above its historical range, as Wall Street prices it as the mandatory royalty tollbooth for every custom AI chip. EDA leaders Cadence, at 30.1x, and Synopsys, at 21.2x, trade near the low end of their historical bands, priced like mature utilities, as the market stacks almost all the scarcity premium into Arm. x.comÂ
Arm's low blended royalties leave pricing and mix leverage that makes earnings look massively understated at 110x forward P/E. It collects about 7 cents per chip overall, versus $1 on compute and networking chips and $0.85-$0.90 on smartphones. An 8-cent bump to 15 cents per chip is a hypothetical $5-6 billion royalty-revenue scenario, which would be pure cash. Mix shift and price increases are coming, though royalties may not double. x.com x.comÂ
Intel's data-center and foundry growth could outlast its PC-driven weak guidance. Data-center revenue rose 78% to $7.3bn and foundry revenue rose 58%, but PCs still account for about half the business and management expects their slowdown through at least the first half of next year. Q4 revenue and margin guidance disappointed, and $0.17 of quarterly EPS came from a mark-to-market gain. The selloff prices in the PC problem, not the turnaround. Overweight; $130 target. x.com x.comÂ
Arm's post-earnings rise makes little sense at over 40x sales, because the results did not justify it. Remaining performance obligations fell and consensus numbers saw only very modest adjustments, yet the shares rose after successive double-digit moves. x.comÂ
Arm ranks A tier among large and mega-cap tech after Q1 earnings on high-visibility licensing growth. Over $2B in new CPU hyperscaler long-term agreements and data-center royalties expected to double again support growth into 2027 and beyond, and forward royalty momentum is excellent. Smartphone seasonality could drag on near-term ramps. The ranking puts Arm below SanDisk and Alphabet in S tier and alongside AMD, Palantir and Meta. x.comÂ
Arm Holdings is expensive against its earnings, trading at 92x forward earnings versus a typical 38x for chipmakers. At 38x next year's $3.05 EPS, fair value runs roughly $102-$130, so at $281.30 buyers pay about 116% over fair value. This is a levels-only view from reported earnings and revenue estimates, with no fundamental work. x.comÂ
Arm is still expensive at about 40x revenue with only 20% growth, so it has not fallen enough. x.comÂ
Arm's fundamentals remain extremely strong, but component shortages could cost it margin as it moves into manufacturing. It confirmed accelerating demand of up to $2B for its new AGI CPU, yet has components for only about 50% of it, so meeting demand may mean paying higher prices. Management expects CPU demand to rise about 4x by 2030, which means about 4x the component needs too. At a valuation priced for perfection, the market may not accept any hit to growth or margins. x.com x.comÂ
Arm is heavily overvalued: at about $240B it trades above 100x forward P/E and roughly 50x sales, already pricing in about 26x earnings five years out. That rests on FY2031 targets of $25B revenue, $15B of it from its own AGI CPU silicon starting from zero, and $9.00 EPS. Momentum is real, with Q1 revenue up 22% and the AGI CPU order book doubling to $2B+. But chip sales dilute ~98% IP gross margins to ~40-50%, and reliance on TSMC wafers adds execution risk the multiple leaves no room for. … Show more
