Arm earns more per chip as cloud grows, but phones are soft and new finished chips carry far lower margins. At 62 times sales the price needs near perfect execution, so I see about 22% downside to $230.
Key points
- $5.85 billion of fiscal 2027 revenue grows 19% in fiscal 2027 on cloud and licensing.
- $2.55 a share of fiscal 2028 profit assumes new silicon dilutes the margin mix.
- 90 times fiscal 2028 profit still pays for growth yet leaves downside here.
The call
The price expects perfection. Arm trades near $294 a share at the October 2026 close, or about 62 times trailing twelve month revenue to June 2026. Holding that level needs about $9 a share of profit by fiscal 2031.
Quarterly revenue with near term forecast ($ billions)SEC XBRL facts to Q1 FY27 plus guidance and author's estimates; as of Oct 8, 2026.
I expect a bumpier road instead. Royalty growth, which means fees earned per chip shipped, has slipped to high teens percent in fiscal 2027. New silicon, which means finished chips Arm sells itself, adds sales near 40% margin in fiscal 2028. That compares with 97% for licenses in fiscal 2026.
Valuation
| Item | Figure |
|---|
| Fiscal 2028 revenue | $6.95 billion in fiscal 2028 |
| Fiscal 2028 operating margin, after operating costs | 38% in fiscal 2028 |
| Fiscal 2028 profit per share | $2.55 a share in fiscal 2028 |
| Multiple paid per dollar of profit | 90 times fiscal 2028 profit |
| Target | $230 a share in twelve months |
A 90 times profit multiple already credits double digit percent growth through fiscal 2028. It sits well below 346 times trailing accounting profit at the October 2026 close. That gap leaves about 22% downside to the October 2026 close and a sell.
What Arm is worth at different multiples ($ per share)Author's arithmetic on FY28 non-GAAP EPS of $2.55; as of Oct 8, 2026.
Risks
- Cloud demand could stay strong and royalties could beat high teens percent growth in fiscal 2027, which you would see in quarterly royalty revenue.
- Silicon orders could convert faster with margins above 40% in fiscal 2028, which you would see in other revenue and gross margin, which means sales minus factory cost.
- SoftBank deals above $200 million in a quarter in fiscal 2027 could extend further, which you would see in contract value, which means promised fees, and receivables, which mean unpaid bills.
What would change my mind
Binding silicon orders plus reaccelerating royalties lifting fiscal 2028 profit clearly above my line would force a new view.
