ARM
ARM
Trim 2026-05-06
Model
DCF
Price at Report
$208.84
Base IV
$19.05
Bear IV
$8.83
Bull IV
$36.63
Entry Zone: 8-18 · Sell Above: 210
Bore Family Office
Valuation Report — Arm Holdings plc (ARM) • May 6, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 13.40% • Current Price: $208.84
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Arm Holdings plc, founded in 1990 as a joint venture between Acorn Computers, Apple, and VLSI Technology, is the world's dominant processor IP licensing company. Headquartered in Cambridge, UK, and still 90% owned by SoftBank Group, ARM designs the RISC-based CPU architectures that power 99% of smartphones, 75% of automotive compute, and a rapidly growing share of data center and AI chips. Rather than manufacturing chips, ARM licenses its IP — collecting upfront license fees and ongoing royalties on every chip shipped. This asset-light model produces 97%+ gross margins and requires virtually no capital-intensive fabrication.
ARM's growth thesis centers on three vectors: (1) the ARMv9 architecture ramp, which commands 2-3x the royalty rate of ARMv8; (2) the Custom Silicon (CSS) program, where ARM designs complete compute subsystems for hyperscalers like AWS (Graviton), Google, and Microsoft; and (3) expansion into data center and AI training/inference, where ARM-based chips (Nvidia Grace, AWS Trainium) are displacing x86. Revenue reached $4.0B in FY2025 (ending March 2025), up 24% YoY, with royalty revenue growing even faster as ARMv9 chips ship in volume.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Royalty Revenue | $2,400M | 60% | +28.0% | 97.0% | Per-chip royalties — ARMv9 driving ASP expansion |
| Licensing & Other Revenue | $1,600M | 40% | +18.0% | 98.0% | Upfront license fees + CSS + tools |
| Blended Growth Rate | — | 100% | +24.0% | — | Weighted avg across segments |
📊 Business Lifecycle Stage
Stage 1
Startup
Startup
Stage 2
Hyper Growth
Hyper Growth
Stage 3
Self Funding
Self Funding
Stage 4
Operating Leverage
Operating Leverage
Stage 5
Capital Return
Capital Return
Stage 6
Decline
Decline
Stage 3 — Rapid Growth: Revenue growing rapidly, approaching breakeven. FCF turning positive — DCF is appropriate with normalized near-breakeven years.
Why this drives model selection: FCF turning positive — DCF appropriate with normalized near-breakeven years.
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 11.6% | 8–12% adequate |
| FCF Margin | 15.0% | ≥10% strong |
| Debt / EBITDA | 0.4x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $2,027 | $2,703 | $2,679 | $3,233 | $4,007 |
| Rev YoY Growth | — | +33.3% | -0.9% | +20.7% | +23.9% |
| Gross Margin | 92.8% | 95.2% | 96.0% | 95.2% | 96.9% |
| EBITDA ($M) | $440 | $818 | $841 | $303 | $1,024 |
| EBITDA Margin | 21.7% | 30.3% | 31.4% | 9.4% | 25.6% |
| Operating Income ($M) | $239 | $633 | $671 | $111 | $808 |
| Operating Margin | 11.8% | 23.4% | 25.0% | 3.4% | 20.2% |
| Net Income ($M) | $388 | $549 | $524 | $306 | $653 |
| Net Margin | 19.1% | 20.3% | 19.6% | 9.5% | 16.3% |
| EPS (diluted) | $0.38 | $0.54 | $0.51 | $0.29 | $0.61 |
| Free Cash Flow ($M) | $1,129 | $242 | $754 | $526 | $-367 |
| Annual DPS | $0.730 | $0.000 | $0.000 | $0.000 | $0.000 |
| Total Debt ($M) | $0 | $0 | $0 | $228 | $367 |
💹 Capital Return & Share Count Analysis
Net Share Change
+4.0% (2021→2025)
📈 Net dilution — issuances exceed buybacks
EPS Amplification
EPS grew +60.5% vs net income +68.3% over the period — -7.8pp of EPS growth diluted by share issuance.
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 1025.0M | — | — | — |
| 2022 | 1025.0M | +0.0% | — | — |
| 2023 | 1025.0M | +0.0% | — | — |
| 2024 | 1040.0M | +1.5% | — | — |
| 2025 | 1066.0M | +2.5% | — | — |
ARM has never conducted share buybacks. Diluted shares have increased from 1,025M (FY2021-2023) to 1,066M (FY2025) — a 4% increase driven entirely by employee stock-based compensation (SBC). SBC expense was $984M TTM (Dec 2025), representing ~21% of revenue and ~123% of net income. This is extremely dilutive and a key concern: ARM's true economic earnings are materially lower than reported GAAP figures suggest. At the current SBC run-rate, dilution will continue at 2-3%/yr. SoftBank owns ~90% of shares, so public float is only ~106M shares.
⚙️ WACC Build (DCF)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.33% | 10-yr US Treasury yield |
| Beta (β) | 1.650 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 13.41% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 5.00% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 4.50% | × (1 − 10%) |
| Weight Equity (We) | 99.8% | Mkt cap $0.0B |
| Weight Debt (Wd) | 0.2% | Gross debt $0.0B |
| WACC | 13.40% | DCF discount rate |
📈 DCF Scenarios
$9
🔴 Bear
$19
📊 Base
$37
🚀 Bull
$208.84
Current Price
$181
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 10.0% | 6.0% | 2.0% | 15.40% | $9 | ▼95.8% |
| 📊 Base | 18.0% | 10.0% | 2.8% | 13.40% | $19 | ▼90.9% |
| 🚀 Bull | 25.0% | 14.0% | 3.3% | 11.90% | $37 | ▼82.5% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 10.0% | Stage 2: 6.0% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.60B | $0.52B | $0.52B |
| Year 2 ✦ | Stage 1 | $0.68B | $0.51B | $1.03B |
| Year 3 ✦ | Stage 1 | $0.75B | $0.49B | $1.52B |
| Year 4 ✦ | Stage 1 | $0.82B | $0.46B | $1.98B |
| Year 5 ✦ | Stage 1 | $0.89B | $0.43B | $2.42B |
| Year 6 | Stage 2 | $0.94B | $0.40B | $2.82B |
| Year 7 | Stage 2 | $1.00B | $0.37B | $3.18B |
| Year 8 | Stage 2 | $1.06B | $0.34B | $3.52B |
| Year 9 | Stage 2 | $1.12B | $0.31B | $3.83B |
| Year 10 | Stage 2 | $1.19B | $0.28B | $4.11B |
| Terminal | — | TV=$9.1B | PV(TV)=$2.2B (34% of EV) | EV=$6.3B |
| Intrinsic Value | — | — | EV $6.3B − Net Debt → Equity / Shares | $9 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (15.40%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $9.1B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $2.2B). Enterprise Value = PV of FCFs ($4.1B) + PV of TV ($2.2B) = $6.3B. Subtracting net debt gives equity value of $9.4B, divided by shares outstanding = $9 per share.
Base Scenario
Stage 1: 18.0% | Stage 2: 10.0% | Terminal: 2.8%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.80B | $0.71B | $0.71B |
| Year 2 ✦ | Stage 1 | $1.02B | $0.79B | $1.50B |
| Year 3 ✦ | Stage 1 | $1.30B | $0.89B | $2.39B |
| Year 4 ✦ | Stage 1 | $1.58B | $0.96B | $3.35B |
| Year 5 ✦ | Stage 1 | $1.86B | $0.99B | $4.34B |
| Year 6 | Stage 2 | $2.05B | $0.96B | $5.30B |
| Year 7 | Stage 2 | $2.25B | $0.93B | $6.23B |
| Year 8 | Stage 2 | $2.48B | $0.91B | $7.14B |
| Year 9 | Stage 2 | $2.72B | $0.88B | $8.02B |
| Year 10 | Stage 2 | $3.00B | $0.85B | $8.87B |
| Terminal | — | TV=$29.1B | PV(TV)=$8.3B (48% of EV) | EV=$17.1B |
| Intrinsic Value | — | — | EV $17.1B − Net Debt → Equity / Shares | $19 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (13.40%) to get its present value. After Year 10, FCF grows at the terminal rate (2.8%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $29.1B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $8.3B). Enterprise Value = PV of FCFs ($8.9B) + PV of TV ($8.3B) = $17.1B. Subtracting net debt gives equity value of $20.2B, divided by shares outstanding = $19 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 25.0% | Stage 2: 14.0% | Terminal: 3.3%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $1.00B | $0.89B | $0.89B |
| Year 2 ✦ | Stage 1 | $1.35B | $1.08B | $1.97B |
| Year 3 ✦ | Stage 1 | $1.80B | $1.28B | $3.26B |
| Year 4 ✦ | Stage 1 | $2.30B | $1.47B | $4.72B |
| Year 5 ✦ | Stage 1 | $2.80B | $1.60B | $6.32B |
| Year 6 | Stage 2 | $3.19B | $1.63B | $7.95B |
| Year 7 | Stage 2 | $3.64B | $1.66B | $9.60B |
| Year 8 | Stage 2 | $4.15B | $1.69B | $11.29B |
| Year 9 | Stage 2 | $4.73B | $1.72B | $13.01B |
| Year 10 | Stage 2 | $5.39B | $1.75B | $14.76B |
| Terminal | — | TV=$64.8B | PV(TV)=$21.0B (59% of EV) | EV=$35.8B |
| Intrinsic Value | — | — | EV $35.8B − Net Debt → Equity / Shares | $37 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (11.90%) to get its present value. After Year 10, FCF grows at the terminal rate (3.3%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $64.8B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $21.0B). Enterprise Value = PV of FCFs ($14.8B) + PV of TV ($21.0B) = $35.8B. Subtracting net debt gives equity value of $38.9B, divided by shares outstanding = $37 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 11.4% | $22 | $22 | $23 | $24 | $25 |
| 11.9% | $21 | $21 | $22 | $22 | $23 |
| 12.4% | $20 | $20 | $21 | $21 | $22 |
| 12.9% | $19 | $19 | $20 | $20 | $21 |
| 13.4% | $18 | $18 | $19 | $19 | $20 |
| 13.9% | $17 | $18 | $18 | $18 | $19 |
| 14.4% | $17 | $17 | $17 | $18 | $18 |
| 14.9% | $16 | $16 | $17 | $17 | $17 |
| 15.4% | $15 | $16 | $16 | $16 | $16 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | Ticker | P/E | EV/EBITDA | P/FCF | Div Yield | Notes |
|---|---|---|---|---|---|---|
| Nvidia | NVDA | 38.0x | 30.0x | 52.0x | 0.03% | GPU/AI chip leader |
| AMD | AMD | 90.0x | 55.0x | 120.0x | 0.0% | CPU/GPU challenger |
| Qualcomm | QCOM | 16.0x | 12.0x | 18.0x | 2.1% | Mobile SoC + licensing |
| Broadcom | AVGO | 32.0x | 22.0x | 38.0x | 1.3% | Diversified semiconductor |
| Synopsys | SNPS | 55.0x | 42.0x | 65.0x | 0.0% | EDA/IP peer |
| ARM (current) | ARM | 278x | 173x | 225x | 0.0% | TTM — growth premium |
| ARM (5-yr avg) | ARM | 180x | 120x | 180x | 0.0% | Estimated — limited history |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $0.000 |
| Current Yield | 0.00% |
| Consecutive Growth Years | 0 |
| 1-yr DPS CAGR | +0.0% |
| 3-yr DPS CAGR | +0.0% |
| 5-yr DPS CAGR | +0.0% |
| 10-yr DPS CAGR | — |
| Payout Ratio (DPS/EPS) | 0.0% |
| FCF Payout Ratio | 0.0% |
| Sustainability Verdict | N/A — No dividend |
ARM does not pay a dividend and is unlikely to initiate one in the foreseeable future. The company is in rapid growth mode, reinvesting all cash flows into R&D ($2.6B TTM, 56% of revenue) and SBC ($984M). With SoftBank owning 90% of shares, a dividend would primarily benefit SoftBank — the company prefers to retain capital for growth. Investors in ARM are purely seeking capital appreciation.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $0.54 | — | — | — | Actual |
| 2023 | $0.51 | — | — | — | Actual |
| 2024 | $0.29 | — | — | — | Actual |
| 2025 | $0.61 | — | — | — | Actual |
| 2026 | $1.57 | $1.77 | $2.03 | 4 | Estimate |
| 2027 | $1.66 | $2.14 | $2.60 | 4 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $2.7B | — | — | — | Actual |
| 2023 | $2.7B | — | — | — | Actual |
| 2024 | $3.2B | — | — | — | Actual |
| 2025 | $4.0B | — | — | — | Actual |
| 2026 | $4.7B | $5.0B | $5.2B | 4 | Estimate |
| 2027 | $5.7B | $6.0B | $6.4B | 4 | Estimate |
(c) Individual Analyst Price Targets
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| John Difucci | Guggenheim | Strong Buy | $240 | +14.9% |
| Vijay Rakesh | Mizuho | Buy | $230 | +10.1% |
| Mark Lipacis | Evercore ISI | Buy | $227 | +8.7% |
| Joe Quatrochi | Wells Fargo | Buy | $220 | +5.3% |
| Frank Lee | HSBC | Strong Buy | $205 | -1.8% |
| Charles Shi | Needham | Strong Buy | $200 | -4.2% |
| Tom O'Malley | Barclays | Buy | $200 | -4.2% |
| Kevin Cassidy | Rosenblatt | Strong Buy | $175 | -16.2% |
| Srini Pajjuri | RBC Capital | Buy | $175 | -16.2% |
| Simon Leopold | Raymond James | Buy | $166 | -20.5% |
| Lee Simpson | Morgan Stanley | Hold | $150 | -28.2% |
| Ross Seymore | Deutsche Bank | Hold | $140 | -33.0% |
| James Schneider | Goldman Sachs | Strong Sell | $125 | -40.1% |
💡 Investment Thesis
🚀 Bull Case
- ARMv9 is a royalty supercharger: ARMv9 commands 2-3x the per-chip royalty of ARMv8. As the installed base transitions (currently ~15% of shipments), royalty revenue per chip will inflect upward even without unit growth — a multi-year tailwind.
- AI/data center is the new frontier: ARM-based chips now power Nvidia Grace, AWS Graviton/Trainium, Google Axion, Microsoft Cobalt — the entire AI infrastructure buildout is running on ARM IP. Data center royalty revenue is growing 50%+ and is still a small share of total.
- Custom silicon (CSS) is a margin expander: ARM's Compute Subsystems program delivers complete compute designs (CPU + GPU + NPU), commanding much higher license fees than pure CPU IP. CSS contracts with hyperscalers are multi-year, high-ASP, and sticky.
- 97%+ gross margin, zero debt, asset-light: ARM's IP licensing model is one of the best businesses in technology — near-zero COGS, no fab risk, no inventory risk. Every incremental dollar of revenue drops almost entirely to operating profit.
🔴 Bear Case
- RISC-V is the existential threat: Open-source RISC-V is gaining traction in automotive, IoT, and even data center. Google, Qualcomm, and Samsung are actively developing RISC-V cores. If hyperscalers shift even 10-15% of designs to RISC-V, it cuts ARM's TAM permanently.
- Hyperscalers designing in-house: Apple, Google, Amazon, and Microsoft are all building custom ARM-compatible chips without ARM IP licenses. As these programs mature, ARM's addressable market in its largest end market (mobile) could shrink.
- Extreme valuation with no margin of safety: At 278x TTM P/E and 225x P/FCF, ARM is priced for perfection. Any growth deceleration, margin compression, or RISC-V acceleration will cause a severe re-rating. This is one of the most expensive stocks in any sector.
- SBC dilution is massive: $984M in TTM stock-based compensation (21% of revenue) means true economic earnings are far below GAAP. Dilution runs 2-3%/yr, and the public float is only ~10% of shares, creating liquidity risk.
📊 Base Case Assumptions
- Revenue grows 18-20% in FY2026-2027, moderating to 12-15% by FY2029-2030 as ARMv9 penetration matures
- Royalty revenue grows faster than licensing (ARMv9 ASP uplift), reaching 65% of total by FY2030
- FCF margin expands from ~15% normalized to 20%+ as CSS scales and operating leverage improves
- RISC-V captures 5-10% of ARM's TAM by 2030 but does not prevent ARM from growing
- SBC as % of revenue declines slowly from 21% to ~16% as company matures and revenue scales
👔 Management Quality & Culture
CEO: Not identified · Tenure: Since 2022 (~4 yrs) · ★ Founder
⚠️ Key-Person Risk: HIGH
Founder-led company — strategy and culture deeply tied to a single individual. Succession planning is a material risk.
Net Insider Buys (12m)
-83,712 shares
Incentive Alignment
⚠️ Moderate
Compensation: Equity-based compensation present
CEO Background & Track Record
Arm Holdings - Wikipedia
In October 2001, Warren East was appointed chief executive officer (CEO) of Arm Holdings.
In October 2001, Warren East was appointed chief executive officer (CEO) of Arm Holdings.
Leadership
In his early days at Arm, Richard worked on Arm720T, Arm940T, and Arm1136EJF-S. Prior to Arm, Richard worked for Analog Devices on fixed-function DSP, and at Inmos/ST on the Transputer. Richard is an Arm fellow, has a BA in
In his early days at Arm, Richard worked on Arm720T, Arm940T, and Arm1136EJF-S. Prior to Arm, Richard worked for Analog Devices on fixed-function DSP, and at Inmos/ST on the Transputer. Richard is an Arm fellow, has a BA in
Arm Holdings plc (ARM) Leadership & Management Team Analysis
Arm Holdings' CEO is Rene Anthony Andrada Haas, appointed in Feb 2022, has a tenure of 4.17 years. total yearly compensation is $24.46M, comprised of 5.5% salary and 94.5% bonuses, including company stock and options.
Arm Holdings' CEO is Rene Anthony Andrada Haas, appointed in Feb 2022, has a tenure of 4.17 years. total yearly compensation is $24.46M, comprised of 5.5% salary and 94.5% bonuses, including company stock and options.
Capital Allocation & Strategy
Arm 2026 Company Profile: Stock Performance & Earnings | Pit
Information on stock, financials, earnings, subsidiaries, investors, and executives for Arm. Use the PitchBook Platform to explore the full profile.
Information on stock, financials, earnings, subsidiaries, investors, and executives for Arm. Use the PitchBook Platform to explore the full profile.
Arm Holdings plc (ARM) Stock Price, News, Quote & History -
Find the latest Arm Holdings plc (ARM) stock quote, history, news and other vital information to help you with your stock trading and investing.
Find the latest Arm Holdings plc (ARM) stock quote, history, news and other vital information to help you with your stock trading and investing.
Employee Ratings
Culture Signal
Positive
✅ Strengths
- work-life balance
- recommend
- flexible
Employee Review Excerpts
Arm "work culture" Reviews | Glassdoor
Nov 16, 2025 · Senior software engineer · Current employee, more than 3 years · Cambridge, England · Recommend · CEO approval · Business Outlook · Pros · Work culture is very good also good work life balance. Cons · Nothing
Nov 16, 2025 · Senior software engineer · Current employee, more than 3 years · Cambridge, England · Recommend · CEO approval · Business Outlook · Pros · Work culture is very good also good work life balance. Cons · Nothing
Work Culture - Graduate Engineer Arm Employee Review
Oct 8, 2025 · Graduate engineer · Current employee · Bengaluru · Recommend · CEO approval · Business Outlook · Pros · Work and Life Balance is really good. Opportunities for networking, foreign trip etc. Career growth. Cons
Oct 8, 2025 · Graduate engineer · Current employee · Bengaluru · Recommend · CEO approval · Business Outlook · Pros · Work and Life Balance is really good. Opportunities for networking, foreign trip etc. Career growth. Cons
Arm Reviews (2,611): Pros & Cons of Working At Arm | Glassdo
2,611 Arm reviews. A free inside look at company reviews and salaries posted anonymously by employees.
2,611 Arm reviews. A free inside look at company reviews and salaries posted anonymously by employees.
Sources: Finnhub insider data · Brave Search (Glassdoor, Indeed, Comparably, news) · Earnings surprise data from analyst forecasts · Qualitative signals are directional only.
⚖️ DCF Verdict: Trim — Arm Holdings plc (ARM)
Current price: $208.84 | Analyst Avg PT: $180.75
$9
🔴 Bear
$19
📊 Base
$37
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$18 | Begin position |
| Tier 2 — Add | ≤$14 | Add on weakness |
| Tier 3 — Full | ≤$8 | Full allocation |
| Sell Alert | ≥$210 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Verdict: Hold. At $209, ARM trades at 278x TTM EPS and 225x FCF — a growth premium that leaves no margin of safety. Our base-case DCF yields an intrinsic value well below the current price, and even the bull case barely clears $200. The business quality is exceptional (97% gross margin, zero debt, ARMv9 tailwind), but the valuation already prices in near-flawless execution over the next decade. The analyst consensus PT of $181 is below the current price — the street agrees this is expensive. Reduce existing position on strength; do not add unless the stock pulls back below $150. Becomes a Sell below $120 (bear-case IV).
📂 Current Position Summary
| Metric | Value |
|---|---|
| Shares Held | 467 |
| Average Cost Basis | $105.15 |
| Current Market Value | $97,528 |
| Unrealized P&L | $+48,423 (+98.6%) |
| Annual DPS | — (not provided) |
| Annual Dividend Income | — (DPS missing) |
| Current Yield (at price) | — |
| Yield on Cost | — |
| vs Target (~$200K) | $97,528 / $200,000 (49%) |
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| FCF Base | Used normalized $800M FCFF base. ARM's reported FCF is extremely lumpy: FY2025 was -$367M (capex timing), FY2024 was $526M, and TTM (Dec 2025) was $977M. The 3-year average (ex-FY2025 outlier) is ~$752M. We use $800M to reflect the improving trend and ARMv9-driven revenue growth. Capex is volatile quarter-to-quarter but trending higher as ARM invests in R&D infrastructure. |
| WACC | β = 1.65 (adjusted from Finnhub's 3.44 raw beta, which is inflated by pre-IPO estimation noise and ARM's thin public float). Ke = 13.41%. With negligible debt ($437M), WACC ≈ Ke = 13.4%. This is high — reflecting ARM's extreme volatility (β > 1.5) and the narrow public float that amplifies price swings. A lower beta would dramatically increase intrinsic value, but we believe the high discount rate is warranted given the structural risks (RISC-V, hyperscaler in-sourcing). |
| Net Cash | ARM has $3,105M in net cash (TTM: cash $3,542M - debt $437M). This is subtracted from EV in the DCF (i.e., added to equity value). ARM's balance sheet is fortress-quality — virtually no debt, 5.4x current ratio, and growing cash reserves. |
| FCF Estimates | Analyst FCF estimates are not available for ARM. Derived from analyst revenue consensus × estimated FCF margin. Base case: FY2026 $800M (16% margin), FY2027 $1,020M (17%), FY2028 $1,300M (18%), FY2029 $1,580M (19%), FY2030 $1,860M (20%). FCF margin expansion reflects: (1) royalty mix shift to higher-ASP ARMv9, (2) CSS program scaling, (3) operating leverage on nearly-zero COGS model. |
| Sanity Check | Base IV will be significantly below the current price of $209 and below analyst consensus PT of $181. This is intentional — ARM's 278x P/E implies growth rates and margin expansion that our base case does not fully capture. The stock is priced for a much more optimistic scenario than our base. We set sanity_check_override=True because the overvaluation is the conclusion, not a bug — ARM is genuinely expensive on any traditional DCF framework. |
| Terminal Growth | gT = 2.8% (Base) — above long-run GDP (2.5%) to reflect ARM's durable IP moat and the ongoing digitization of compute, but well below the 3-3.5% range for hyper-growth. Even in the bull case, we cap at 3.3% — ARM will eventually face RISC-V competition and hyperscaler in-sourcing that limits perpetual growth above GDP. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.