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ARM Appears Expensive to Its Industry: Is the Premium Warranted?
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Key Takeaways
ARM trades at 76.9X forward P/E and 131.25X EV/EBITDA, far above industry averages.
ARM's Q3 fiscal 2026 EPS rose 10% and revenue grew 26%, highlighting strong operating leverage.
ARM benefits from partnerships with Microsoft, NVIDIA and Amazon that boost its growth outlook.
Arm Holdings Plc (ARM - Free Report) is currently trading at a whopping 76.9X forward 12-month price-to-earnings, significantly higher than the industry’s 31.94X. The stock appears expensive and the forward-looking metrics also narrate the same tale.
Image Source: Zacks Investment Research
Arm Holdings’ Price/Earnings-to-Growth ratio (PEG) is 4.09 compared with the industry's 1.11, indicating that investors are paying nearly four times more for each unit of the stock’s earnings growth. In the third quarter of fiscal 2026, ARM’s adjusted earnings per share (EPS) increased 10% year over year to 43 cents, while its revenues rose 26%. It is a clear indication of significant operating leverage that the market is considering to price in.
On the Enterprise value-to-Earnings Before Interest and Depreciation and Amortization (EV/EBITDA) ratio front, investors are paying a high premium value as the company trades at 131.25X, significantly higher than the industry’s 29.88X. During the third quarter of fiscal 2026, the company’s adjusted operating income grew 14% year over year to $505 million, showcasing its operating efficiency. Growing partnerships with giants such as Microsoft, NVIDIA and Amazon, which use ARM’s services while launching their new products, further boost investors' perception of the firm’s future sustainable growth.
ARM’s ability to improve its balance sheet is vital to its valuation. In the third quarter of fiscal 2026, the company’s cash and cash equivalents were $2.80 billion, higher than the previous quarter’s $2.51 billion. The company is effectively generating more cash, enabling it to invest more into technology and innovation and consequently supporting the basic need for advancement of firms within its industry.
The company currently operates as one of the largest semiconductor and software design providers. While the current valuation multiples appear high, strong collective growth and partnerships with high-growth companies suggest that the premium price is a result of operational efficacy rather than speculation.
Arm Holdings Trades Cheaper Than Its Competitors
Intel Corporation (INTC - Free Report) and Applied Optoelectronics, Inc. (AAOI - Free Report) are major competitors of ARM. INTC trades at a 109.76X forward 12-month price-to-earnings, and AAOI is valued at 99.26X. ARM is currently priced lower than its competitors, making the stock more appealing to investors.
Image Source: Zacks Investment Research
ARM’s Price Performance & Estimates
Over the past year, Arm Holdings’ stock has gained 72.2% compared with the industry’s 137.5% growth. Intel Corporation and Applied Optoelectronics, Inc. shares have surged 263.6% and 1,486.3%, respectively, over the same period.
Image Source: Zacks Investment Research
ARM’s Share Price Performance
Arm Holdings has a Value Score of F, while Intel Corporation and Applied Optoelectronics, Inc. carry a Value Score of D and F, respectively.
The Zacks Consensus Estimate for ARM’s earnings for fiscal 2026 and 2027 has increased marginally over the past 60 days.
View the Zacks #1 Rank List
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ARM Appears Expensive to Its Industry: Is the Premium Warranted?
Key Takeaways
Arm Holdings Plc (ARM - Free Report) is currently trading at a whopping 76.9X forward 12-month price-to-earnings, significantly higher than the industry’s 31.94X. The stock appears expensive and the forward-looking metrics also narrate the same tale.
Image Source: Zacks Investment Research
Arm Holdings’ Price/Earnings-to-Growth ratio (PEG) is 4.09 compared with the industry's 1.11, indicating that investors are paying nearly four times more for each unit of the stock’s earnings growth. In the third quarter of fiscal 2026, ARM’s adjusted earnings per share (EPS) increased 10% year over year to 43 cents, while its revenues rose 26%. It is a clear indication of significant operating leverage that the market is considering to price in.
On the Enterprise value-to-Earnings Before Interest and Depreciation and Amortization (EV/EBITDA) ratio front, investors are paying a high premium value as the company trades at 131.25X, significantly higher than the industry’s 29.88X. During the third quarter of fiscal 2026, the company’s adjusted operating income grew 14% year over year to $505 million, showcasing its operating efficiency. Growing partnerships with giants such as Microsoft, NVIDIA and Amazon, which use ARM’s services while launching their new products, further boost investors' perception of the firm’s future sustainable growth.
ARM’s ability to improve its balance sheet is vital to its valuation. In the third quarter of fiscal 2026, the company’s cash and cash equivalents were $2.80 billion, higher than the previous quarter’s $2.51 billion. The company is effectively generating more cash, enabling it to invest more into technology and innovation and consequently supporting the basic need for advancement of firms within its industry.
The company currently operates as one of the largest semiconductor and software design providers. While the current valuation multiples appear high, strong collective growth and partnerships with high-growth companies suggest that the premium price is a result of operational efficacy rather than speculation.
Arm Holdings Trades Cheaper Than Its Competitors
Intel Corporation (INTC - Free Report) and Applied Optoelectronics, Inc. (AAOI - Free Report) are major competitors of ARM. INTC trades at a 109.76X forward 12-month price-to-earnings, and AAOI is valued at 99.26X. ARM is currently priced lower than its competitors, making the stock more appealing to investors.
Image Source: Zacks Investment Research
ARM’s Price Performance & Estimates
Over the past year, Arm Holdings’ stock has gained 72.2% compared with the industry’s 137.5% growth. Intel Corporation and Applied Optoelectronics, Inc. shares have surged 263.6% and 1,486.3%, respectively, over the same period.
Image Source: Zacks Investment Research
ARM’s Share Price Performance
Arm Holdings has a Value Score of F, while Intel Corporation and Applied Optoelectronics, Inc. carry a Value Score of D and F, respectively.
The Zacks Consensus Estimate for ARM’s earnings for fiscal 2026 and 2027 has increased marginally over the past 60 days.
ARM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.