A $2 Billion Reason to Buy Arm Holdings Stock Now

A $2 Billion Reason to Buy Arm Holdings Stock Now

Nauman Khan

Sat, August 1, 2026 at 5:00 PM GMT+3 4 min read

• ARM -0.77%

Arm Holdings (ARM) stock is getting fresh bullish support after the chip designer delivered better-than-expected fiscal first-quarter results, with analysts highlighting its solid revenue growth, earnings beat and accelerating demand for its new AGI CPU

Arm reported record Q1 revenue of $1.29 billion, up 22% year-over-year (YOY), while adjusted earnings came in at $0.45 per share versus Wall Street expectations of $0.40.

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More importantly, CEO Rene Haas said customer demand for Arm's AGI CPU now exceeds $2 billion across fiscal 2027 and 2028. That is important because the AGI CPU represents a major expansion for Arm beyond its traditional licensing and royalty model. Analysts particularly praised the strength of Arm's data-center royalty growth and management's operations.

ARM Stock Has More Than Doubled in 2026

Arm shares have been on a wild ride this year as investors increasingly price in the company's opportunity in AI infrastructure. The stock has soared 123.6% year-to-date (YTD). The rally has largely been driven by the company's AI ambitions, particularly the Arm AGI CPU unveiled in March. Arm says the chip is its first production silicon product designed specifically for agentic AI workloads.

Yet, valuation remains one of the biggest risks for investors. ARM trades at a price-to-sales ratio of 48.82 times and a price-to-book ratio of 28.67 times, far above typical semiconductor-industry averages.

The bullish argument is that investors are not simply paying for today's licensing and royalty revenue. They are paying for Arm's potential to become a much bigger player in AI data centers through its CPU architecture and new merchant-silicon strategy.

Arm's long-term targets help explain the premium. The company has previously outlined a path toward $25 billion in annual revenue by fiscal 2031, including $15 billion from AGI CPU sales.

The problem is that execution now matters enormously. At this valuation, investors have little tolerance for disappointing growth.

Strong Earnings Highlight Arm's AI Momentum

Arm's latest quarterly numbers provide plenty of ammunition for the bulls. Revenue rose 22% YOY to a record $1.29 billion, beating the $1.26 billion consensus estimate. Royalty revenue increased 22% to $715 million, while licensing and other revenue climbed 23% to $574 million. Adjusted EPS jumped 29% to $0.45.

The strongest signal came from data centers. Arm said cloud AI and data-center royalties more than doubled YOY showing that its technology is expanding beyond smartphones and into higher-growth computing markets.

The company also generated $665 million in free cash flow during the quarter.

For the second quarter, management expects revenue between $1.33 billion and $1.43 billion, with adjusted EPS of $0.43 to $0.51. That outlook remains above Wall Street expectations.

Arm Is Expanding Beyond Smartphones

Arm is also becoming much more than the CPU architecture behind smartphones. The company is pushing deeper into cloud infrastructure, PCs, edge AI and physical AI while developing its own production silicon. Arm says more than 350 billion Arm-based chips have shipped to date, with its architecture used in more than 99% of smartphones.

The AGI CPU could change the economics of that business. Demand for the chip now exceeds $2 billion across fiscal 2027 and 2028. Oracle (ORCL) is among the customers, while Arm is working with partners to secure manufacturing capacity and scale production.

The opportunity is significant because AI data centers are increasingly demanding efficient CPUs alongside GPUs. That gives Arm another avenue to benefit from the massive AI infrastructure buildout.

Wall Street Remains Bullish on Arm Stock

Analysts largely remain constructive following the earnings report. Jefferies maintained its "Buy" rating and $320 price target, pointing to the strength of Arm's results and the long-term potential of its agentic AI opportunity.

J.P. Morgan also maintained an "Overweight" rating and raised its price target to $255, arguing that the AGI CPU narrative continues to strengthen.

HSBC remained at "Hold" while cutting its target to $230, citing uncertainty around manufacturing capacity.

Other firms remain more optimistic. New Street upgraded Arm to "Buy" with a $260 target, while Wells Fargo maintained its "Buy" rating with a $280 target.

Yet the consensus is still "Moderate Buy, while carrying a mean price target of $317.48, which suggests a 30% upside premium.

Conclusion

The message from Wall Street is clear that Arm's earnings were robust, but the bigger story is whether its AGI CPU can turn the current $2 billion-plus demand pipeline into substantial revenue. For now, analysts appear increasingly confident that the opportunity is real.

On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com