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Arm Holdings plc ARM stock has lost significantly over the past three months. Shares have plunged 21.8% compared with the industry’s and the Zacks S&P 500 Composite’s declines of 14.4% and 7.8%, respectively.
Three-Month Price Performance
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Investors may wonder whether now is the right time to make a move on ARM stock, given its weakness over the past three months. Let’s analyze to conclude.
Strategic Expansion in Server Market Aids Arm Holdings
ARM’s tendency to expand its presence in the server market is gaining significant traction, with industry giants like NVIDIA NVDA and Microsoft MSFT, adopting Arm-based architectures swiftly. NVIDIA is currently using Arm9 for its Grace Blackwell super chip, and Microsoft has announced that it will be expanding its Arm-based data center chips. Per management, nearly 50% of the new server chips shipped to key hyperscalers in 2025 will be Arm-based. This represents a 15% growth from 2024, highlighting the rapid adoption of ARM’s technology in this sector. Substantial growth in server chip market share, backed by major players including NVIDIA and Microsoft, solidifies Arm Holdings’ position as a force to be reckoned with in the high-performance computing field.
ARM’s Business Model: Blueprint for Growth
Arm Holdings’ business model is centered around licensing its chip designs and collecting royalties. This model enables the company to generate a consistent stream of revenues while minimizing capital expenditure. This productive business structure, coupled with strategic partnerships, ensures ARM’s relevance and preference in vital growth areas, including automotive, data centers, and smart devices. Moreover, the company’s robust financial position is underlined by an influx of capital from its initial public offering and a strong cash reserve of $2.7 billion with no debt. This enhances Arm Holdings’ ability to fund R&D, pursue buyouts, and conduct market expansion, providing a significant competitive edge within its industry peers.
Arm Holdings’ Strong Liquidity Position
ARM maintains an impressive liquidity position, facilitated by its consistent cash growth and low short-term debt levels. In the fourth quarter of fiscal 2025, the company’s current ratio (a measure of liquidity) was 5.2, increasing 4.8% from the preceding quarter and growing nearly twice that of the year-ago quarter’s figure. Additionally, the metric surpasses the industry average of 1.38, further strengthening its liquidity position.
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