Bill 'Latency Lord' Brennan
Fundamental Growth Investor, B2B/Sector Leaders & Picks-and-Shovels
Arm's valuation makes no sense unless analyst estimates are off by 100%. It is one of the few true bubbles, alongside CrowdStrike in software, Tesla among mega caps and Costco at 50x; elsewhere there are pockets of dumb behavior but few true bubbles. Breadth is key: as this cycle's winners correct, the question is whether stocks that have not been involved can lift the market. x.comÂ
Arm looks wildly overvalued at nearly a $500 billion market cap, about 96x sales and 150x next-twelve-month earnings. The euphoria shows in @steve2bacon calling it the easiest hold ever. 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
SoftBank owns about 90% of Arm, leaving a locked-up float that looks almost certain to be pushed far higher in the early innings of a GPU mania. The bet is not on Arm's technology but on others squeezing that tight float. x.com x.comÂ
Arm is still expensive at about 40x revenue with only 20% growth, so it has not fallen enough. 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'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 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 valuation multiple is too high to be appealing. x.comÂ
Arm remains a long-term winner over the next 10 years, but not a short-term buy after running too far, too fast. Its performance has to catch up with at least part of the move, so buying at these levels carries elevated risk if a negative surprise hits. 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
