At $294 Arm trades near 92 times my forecast earnings a year out. Cloud royalties are booming, but phones are shrinking and the silicon push is unproven. I expect about $225 in twelve months.
Key points
- $225 target, 23% below the $294.31 price, from 70 times my $3.22 earnings per share estimate for the year starting October 2027.
- 92 times forward earnings is what today's price pays on my estimate; that is already rich for a company growing revenue about 20% a year.
- $1.29 billion June-quarter revenue grew 22%, but operating margin was only 7%, and stock pay is $1.1 billion a year.
The call
The price requires Arm to roughly double revenue to about $10 billion by fiscal 2029 and lift profit margin to 45%. It must also keep a multiple near 90 times earnings. That is a very high bar.
Share price in 12 months by multiple on $3.22 forward EPS ($)Analyst arithmetic on own EPS estimate, Oct 8, 2026; current price $294.31
I believe the business is excellent but the price is too optimistic. Cloud royalties more than doubled, yet smartphones, the largest base, are shrinking on memory costs. The chip business carries 40% margins, not the 97% of licensing, and SoftBank supplies 30% of revenue.
Valuation
| Item | Estimate |
|---|
| Fiscal 2028 revenue (year to March 2028) | $8.0 billion |
| Fiscal 2029 revenue | $10.2 billion |
| Earnings per share, fiscal 2028 / 2029 | $2.74 / $3.70 |
| Blended forward earnings per share | $3.22 |
| Multiple | 70 times |
| Target price | $225 |
I use 70 times because growth of 25% or more with high margins deserves a premium, but not the current 92 times. Options imply about a 24% move either way by December, so a 23% downside is within normal swings. Downside to $193 at 60 times; upside to $257 at 80 times still sits below today's price.
Risks
- Silicon demand converts faster than I assume: the $2 billion customer demand turns into binding orders. Watch November 4 results and the promised margin update.
- Agentic AI lifts CPU demand and the market pays more than 90 times for it. Watch data-center royalty growth.
- Short squeeze and momentum: the stock rose 17% in a month. Watch short interest, 15.5 million shares in mid-September.
What would change my mind
Fiscal Q2 and Q3 reports showing royalties growing above 25% with silicon margins above 40% and a clear order backlog would lift my earnings estimate toward $4.20 and justify the price.