Executive summary
- Arm reported Q1 FYE26 revenue $1.053B (+12% YoY) with royalty revenue $585M (+25% YoY); the company guided Q2 revenue $1.01B–$1.11B (Arm shareholder letter, Jul 30, 2025). (Note: this analysis uses the central investor question is arm a buy after q1 fy2026 results as its organizing theme.) (Arm Newsroom)
- Profitability profile remains excellent: licensing/royalty economics delivered extremely high gross margins (~97% FY2025) but operating margins are sensitive to R&D investment and go-to-market expansion (Arm Form 20-F, May 28, 2025). (investors.arm.com)
- Balance sheet is net-cash: cash & short-term investments ≈ $2.8–2.9B, total debt modest (~$396M), supporting R&D or opportunistic M&A without immediate refinancing risk (Form 20-F; StockAnalysis, Sep 2025). (SEC)
- Valuation is premium: market cap ≈ $148B, forward P/E and P/S multiples price high growth and AI/data-center optionality; downside risk if license cadence or royalty growth slows (MarketWatch/CompaniesMarketCap/StockAnalysis, Sep 2025). (MarketWatch)
- One-sentence verdict: is arm a buy after q1 fy2026 results — yes only for investors willing to pay a premium for platform optionality (AI + cloud + automotive) and who accept execution and geopolitical risk; others should wait for clearer license cadence or a valuation reset.
Summary fundamentals
- Latest quarter revenue (Q1 FYE26): $1.053 billion (+12% YoY). (Arm Q1 FYE26 release, Jul 30, 2025). (Arm Newsroom)
- Royalty revenue (Q1): $585 million (+25% YoY). (Arm Q1 FYE26 release, Jul 30, 2025). (investors.arm.com)
- Latest quarter adjusted EPS: $0.35 (company reported adjusted EPS for Q1). (Arm Q1 shareholder letter, Jul 30, 2025). (Arm Newsroom)
- FY2025 revenue (TTM): $4.007 billion (+24% YoY). (Arm Form 20-F, May 28, 2025). (investors.arm.com)
- Gross margin (FY2025): ~97% (licensing/royalty model; revenue $4,007M vs cost of sales $121M). (Arm Form 20-F, May 28, 2025). (SEC)
- Debt-to-equity: total debt ~ $396M vs shareholders’ equity (~$6.8B) → D/E ≈ 0.06; net-cash posture given cash balances. (Arm Form 20-F; StockAnalysis summary). (SEC)
- Market cap (snapshot Sep 26, 2025): ~$147–148B. (MarketWatch / CompaniesMarketCap). (MarketWatch)
Detailed fundamental analysis
Business model and revenue drivers
Arm is an IP licensor: revenue splits between royalties (per-chip fees as devices ship) and licenses & other (upfront license fees, tools and services). Q1 FYE26 showed royalty acceleration (+25% YoY), driven by increased shipments of Arm-based SoCs across mobile, automotive and early data-center designs; license revenue was flat to slightly down, reflecting lumpiness of upfront design wins (Arm shareholder letter, Jul 30, 2025). Royalty growth is the stable multiplier from which long-term cash flow scales. (Arm Newsroom)
Margin profile and cost structure
Arm’s cost of sales is low relative to revenue, producing unusually high gross margins (~97% FY2025) typical of license/IP companies; operational leverage flows to the bottom line if R&D and SG&A growth remain controlled. However, management signaled elevated R&D to pursue platform/Compute Subsystem opportunities and possible chiplet initiatives — these investments reduce near-term incremental margins but could lift long-term TAM if successful (Form 20-F; Reuters commentary). (SEC)
Balance sheet strength and capital allocation
Arm ended the most recent fiscal period with cash and short-term investments roughly $2.8–2.9B and minimal debt (~$396M), providing flexibility for strategic investment. The net cash position enables higher R&D outlays, potential M&A, or shareholder returns if management chooses — though the company currently prioritizes reinvestment for growth. (Form 20-F; StockAnalysis). (SEC)
Competitive dynamics and moat
Arm’s IP is embedded in the majority of smartphones and a growing share of edge and IoT devices; its Neoverse roadmap targets cloud and AI infrastructure. The moat is architectural ubiquity plus ecosystem tooling and standards. Primary risk is emergent open standards (RISC-V) and vertical integration by hyperscalers designing custom cores — both can erode licensing upside over time if Arm fails to maintain relevance in high-end data center CPU designs. (Arm Form 20-F; FT analysis). (SEC)
Momentum & technical snapshot
(Technical indicators pulled from Investing.com and StockAnalysis, Sep 26–27, 2025.)
- RSI(14): ≈ 43.0 — neutral to mildly oversold (Investing.com technicals). (Investing.com)
- MACD status: MACD below signal on daily feeds — short-term momentum negative (Investing.com technicals). (Investing.com)
- 50-day SMA: ~143.0; 200-day SMA: ~141.8; price trading slightly below the 50-day and near the 200-day, indicating mixed short/long structure (Investing.com / StockAnalysis moving averages). (Investing.com)
- 1-month return vs Nasdaq: ARM ≈ +0.9% 1-month vs Nasdaq Composite ≈ +4.8% — ARM has underperformed the broader index in the last month (MarketWatch performance snapshots). (MarketWatch)
- Average daily dollar volume: avg vol ≈ 4.75M shares/day × $140 ≈ $665M/day (StockAnalysis avg volume × price). High liquidity supports trading but also produces volatility. (StockAnalysis)
Interpretation: momentum softened after Q1 results and strategic commentary about building chips, and technicals imply limited near-term upside until re-acceleration or clearer guidance.
Peer comparison
Direct public peers in IP/EDA and chip-design ecosystems: Synopsys (SNPS) and Cadence (CDNS).
| Company | Revenue growth (latest) | Gross margin | Debt / Equity | Forward P/E (approx) |
|---|---|---|---|---|
| Arm Holdings (ARM) | +24% FY2025 | ~97% (licensing model). (investors.arm.com) | ~0.06 (low). (SEC) | ~75–80x (consensus). (StockAnalysis) |
| Synopsys (SNPS) | Q3 FY25 revenue +14% YoY ($1.74B qtr) (Sep 9, 2025 release). (investor.synopsys.com) | ~80–82% | low leverage | ~30–40x |
| Cadence (CDNS) | Q2 2025 revenue $1.275B, growth ~19% YoY (company release). (investor.cadence.com) | ~80–85% | moderate | ~40–50x |
Sources: Synopsys and Cadence investor releases; Arm Form 20-F. The table shows Arm trades at a material premium despite similar high gross margins for peers, reflecting differing growth expectations and platform optionality. (investor.synopsys.com)
Latest earnings highlights & management guidance
- Q1 FYE26 revenue: $1.053B, royalties $585M (+25% YoY). (Arm Q1 shareholder letter, Jul 30, 2025). (Arm Newsroom)
- Adjusted EPS: $0.35 for the quarter; management guided Q2 revenue $1.01B–$1.11B and adjusted EPS $0.29–$0.37, reflecting cautious near-term cadence (company letter). (Arm Newsroom)
- Management comment (≤25 words): CEO Rene Haas said Arm will “invest in chiplets and solutions while protecting licensing relationships” (Reuters coverage quoting CEO, Jul 30, 2025). (Reuters)
Strategic moves, catalysts & risks (from filings/news)
Strategic moves / catalysts
- Armv9 and Compute Subsystems (CSS): ongoing adoption in mobile, automotive and initial data-center designs increases royalty per device and opens new TAM segments (Arm Q1 presentation). (investors.arm.com)
- Possible price strategy: historical reporting shows Arm considered licensing price increases for certain segments to capture more value — a potential revenue lever if adopted (Reuters Jan 13, 2025). (Reuters)
Key risks
- Conflict with licensees: management’s statement on exploring chip/chiplet design risks antagonizing major customers who license Arm IP for their own chips (Reuters / FT reporting). That conflict could reduce licensing appetite or accelerate migration to open alternatives. (Reuters)
- Geopolitics and PRC exposure: ~19% of FY2025 revenue derived from PRC shipments — trade restrictions or tariffs could impact growth. (Form 20-F disclosure). (SEC)
- Valuation sensitivity: premium multiples require flawless execution; any slowdown in license cadence or royalty shipment trends will trigger steep downside. (Market commentary). (StockAnalysis)
Valuation & scenario analysis
Use FY2025 revenue $4.007B and analyst EPS consensus scenarios. (Forward EPS consensus varies across data providers; where precise consensus unavailable in 10 minutes, we use revenue and margin assumptions to infer.)
Assumptions summary:
- Shares outstanding ≈ 1.06B (approx. public float figures); current price ~$140 → market cap ≈ $148B (MarketWatch). (MarketWatch)
Conservative case (execution slower, licensing moderates)
- Revenue growth slows to +8% → FY revenue ≈ $4.33B; adjusted operating margin falls to 35% → adjusted operating income ≈ $1.52B; apply P/E 30 → implied market cap ≈ $45.6B → price ≈ $43.
Base case (company meets guidance; royalty growth persists)
- Revenue grows to $4.5–5.0B with operating margin 40% → operating income ≈ $1.8–2.0B; apply P/E 60 (premium) → implied market cap ≈ $108–$120B → price ≈ $102–$113.
Optimistic case (Arm captures large data-center wins and price increases)
- Revenue accelerates to $6–7B, margin 45% → operating income ≈ $2.7–3.15B; P/E 80 → market cap ≈ $216–$252B → price ≈ $204–$238.
These scenarios are illustrative: Arm’s current market price (~$140) sits between base and optimistic in implied expectations; downside risk to conservative is large because multiples compressed heavily.
Trading checklist & signals
Momentum trader (short-term)
- Entry trigger: daily close above 50-day SMA (~$143) with >1.5× 20-day volume and MACD crossing above signal. (Use Investing.com / TradingView to confirm real-time). (Investing.com)
- Stop: 8% below entry or below 200-day SMA, whichever tighter.
- Targets: partial take-profit at +15% and +30%; tighten on negative news (license cancellations, regulatory headlines).
Long-term investor (fundamental)
- Must-see signals before large allocation: (1) two consecutive quarters of royalty growth >20% YoY, (2) license revenue pickup confirming multi-year design wins, (3) no material customer defections or regulatory action. (Arm Form 20-F; shareholder letter). (investors.arm.com)
- Sizing: initial allocation 1–3% of portfolio; increase only as the above conditions are met.
