Thinking about what to do with Arm Holdings stock? You are definitely not alone. With the semiconductor sector capturing headlines and Arm’s architecture showing up in billions of devices, figuring out whether to buy, hold, or trim your position is more relevant than ever. It is no surprise that Arm’s share price has been on the move recently, closing at $154.87 after climbing 1.5% over the past week and just half a percent for the month. Step back, though, and Arm stands out more over a longer time frame, having clocked a 20.8% return so far this year, even if the one-year rise sits at a modest 2.2%.
Behind the scenes, a few key events are shaping investor sentiment. On the upside, Qualcomm’s adoption of the latest Arm technology and the company’s recent hire from Amazon’s AI chip team shine a light on Arm’s design strengths and growth potential in AI and custom chip markets. At the same time, SoftBank’s big-ticket financing move using Arm shares as collateral is a reminder of the sizable bets being placed, and the risk perceptions in play.
With all that noise, how do you figure out what Arm is truly worth? On a straight-up valuation score, where a company gets credit for each sign it is undervalued, Arm only checks one box out of six, for a total value score of 1. In other words, the case for undervaluation is not obvious. But valuation is a nuanced subject, and to make informed decisions, it pays to go deeper. Let us take a closer look at the different approaches analysts use, and then, stick around, because there is an even better way to assess a stock’s real value in today’s market.
Arm Holdings scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting them back to the present, capturing both expected growth and the time value of money. For Arm Holdings, this model uses Free Cash Flow (FCF) estimates as its base: over the last twelve months, Arm generated $774 million in FCF. Analyst projections see this figure rising substantially, hitting nearly $5 billion by March 2030. Only the first five years of forecasts come from analysts, with further projections extrapolated using prevailing growth rates.
All cash flows are denominated in US dollars, as reported. The DCF model used here, the 2 Stage Free Cash Flow to Equity approach, takes these projections and discounts them using an appropriate rate to arrive at an estimated intrinsic value. For Arm, the DCF fair value lands at $64.25 per share, which is 141% below today’s market price. This implies that Arm Holdings stock is trading well above the level justified by its projected cash flows, despite the company’s rapid growth outlook.
Story Continues
Result: OVERVALUED
ARM Discounted Cash Flow as at Oct 2025
Our Discounted Cash Flow (DCF) analysis suggests Arm Holdings may be overvalued by 141.0%. Find undervalued stocks or create your own screener to find better value opportunities.
For companies that are profitable but growing rapidly or investing heavily in the future, the Price-to-Sales (P/S) ratio is a popular valuation tool. It offers a way to compare what investors are willing to pay for each dollar of revenue, especially when fast expansion makes profits more volatile or less predictable. Growth expectations and the risk profile of a company both play roles in what counts as a “normal” P/S ratio. Typically, high-growth firms will have higher multiples, while riskier or slower-growing ones tend to trade at lower multiples.
Looking at Arm Holdings, the current P/S ratio sits at 39.80x. For context, the average for the semiconductor industry is just 4.76x, and peer companies cluster around 5.47x. This puts Arm’s valuation at the higher end of the spectrum, reflecting the market’s belief in its unique positioning and growth potential. However, benchmarks like peer or industry averages can miss key details specific to the company in question.
This is why Simply Wall St’s “Fair Ratio” is useful. It incorporates not only industry and peer data but also Arm’s own revenue growth, margins, scale, and business risks. For Arm, the proprietary “Fair Ratio” stands at 42.49x, which is almost exactly where the stock trades today. The minimal difference suggests the market price is in line with what would be expected given all those factors, rather than being dangerously stretched or deeply discounted.
Result: ABOUT RIGHT
NasdaqGS:ARM PS Ratio as at Oct 2025
PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a clear story that you (or an analyst) create about a company, connecting its business outlook, your expectations for future revenue, earnings, and margins, and then translating those into a fair value for the stock.
Unlike traditional metrics, Narratives help you see why Arm might be worth more or less, based on well-reasoned assumptions about what the future holds. This gives your investment decision greater context, tying together the company’s real-world opportunities and risks with financial forecasts, resulting in a unique fair value: your story, quantified.
Narratives are accessible and easy to use on Simply Wall St’s Community page, where millions of investors share and compare these story-driven forecasts. As new information comes in, such as earnings reports or market-moving news, Narratives update dynamically so you’re always working with the latest view.
For example, some investors forecast robust AI and IoT demand to push Arm’s fair value up to $210.00. Others, focused on competition and execution risk, see it as low as $80.00. Narratives help you weigh these perspectives, compare each Narrative’s fair value to the current share price, and decide when it’s time to buy, hold, or sell.
For Arm Holdings, we’ll make it really easy for you with previews of two leading Arm Holdings Narratives:
🐂 Arm Holdings Bull Case
Fair Value: $210.00
Current share price is 26.2% below this Narrative’s fair value
Expected Revenue Growth: 27.7%
Forecasts explosive revenue and margin expansion driven by data center, AI, and IoT adoption, supported by higher royalty rates and deepening software ecosystem advantages.
Predicts Arm’s share in key CPU markets could exceed 75%, which could lead to robust, compounding high-margin earnings across industries as the company expands into subsystems and end-to-end solutions.
Notes critical risks including competition from RISC-V, increased customer self-sufficiency, geopolitical challenges, and the potential for rising R&D expenses to outpace top-line growth.
🐻 Arm Holdings Bear Case
Fair Value: $152.59
Current share price is 1.5% above this Narrative’s fair value
Expected Revenue Growth: 21.5%
Highlights substantial earnings and royalty growth from AI, IoT, and edge computing expansion, backed by premium IP and a large developer ecosystem.
Emphasizes execution risks and margin pressures as Arm moves beyond its core platform into new compute segments, facing intensified R&D needs and dependency on flagship smartphones.
Cautions on uncertain geopolitical and market conditions since Arm’s high valuation and major customer reliance may limit further upside if new growth categories underperform.
Do you think there’s more to the story for Arm Holdings? Create your own Narrative to let the Community know!
NasdaqGS:ARM Community Fair Values as at Oct 2025
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include ARM.
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