TBU
Semiconductor & AI Infrastructure Commentary
Arm's 42x sales valuation is hard to justify. It makes no money on Nvidia's Vera CPU and put up a junk quarter and guide with that data in hand. Its real money comes from its own AGI CPU, which competes with what Nvidia wants to do, and its 2030 royalty plan does not assume data centers become the majority. An accelerator business whose data-center revenue undergrows Nvidia's on a forward basis, without big margin accretion, does not deserve a real multiple. x.com x.com 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 is set to be the mother of all shorts once investors realize its data center chips have only one customer and that it has no logic manufacturing capacity. x.comÂ
Arm signaled confidence in securing supply allocations: CEO Rene Haas said Arm can secure enough supply to meet $2B of customer demand for its AGI CPU, and real demand is probably larger, with growth supply-constrained as usual. Supply, not demand, is the limiting factor from Nvidia to its upstream suppliers; Ciena also says component availability is what limits its growth. x.comÂ
Arm remains wildly overvalued even after falling 175 points from its top, still trading at 336x earnings, 236x forward earnings and 61.5x sales. Eventually the bids will stop, there will be no bailout rally and chasers will be forced to learn the fundamentals. The price target remains $100-120, reached slowly and then all of a sudden. x.comÂ
Arm is not worth buying more at about 150x forward earnings. The bottleneck it addresses and its pricing power are real, but it is still unproven whether Arm can capture enough of the profit to justify that multiple. 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'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 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 is well positioned in the AI CPU stack as agentic AI drives massive CPU demand and x86 loses ground. Its new AGI CPU, its first production silicon, comes with a five-year goal of about $15 billion in chip revenue, $25 billion total and more than $9 in EPS, roughly 38% annual growth, though meaningful revenue is not expected until fiscal 2028. Royalties from third-party CPUs like Nvidia's Vera add another path. That TAM expansion could take out its roughly $185 all-time high within two years. … Show more
TSMC benefits as new AI chips and capital keep flowing to its leading-edge nodes. Arm launched its AGI CPU, 136 Neoverse V3 cores on TSMC 3nm for agentic AI, with OpenAI and Meta as lead customers and a target of $15B+ annual chip revenue within five years. Per Bloomberg, OpenAI is nearing a $10B raise at $730B pre-money, and Meta's infrastructure head says AI demand is going exponential. Samsung Foundry's 2nm yield reaching 60%+ puts it within striking distance of TSMC's estimated 60-70%. x.comÂ