ARM Holdings announced its latest quarterly results, which slightly exceeded market expectations. However, Goldman Sachs believes investor expectations were already significantly elevated prior to the earnings release, making it difficult for the modest beat to provide additional support for the stock price. The firm maintains its Sell rating on ARM Holdings, with a target price implying a downside of over 40% from the current market price.
According to a research report published by Goldman Sachs on May 6, 2026, ARM's fiscal fourth-quarter revenue reached $1.49 billion, slightly surpassing Goldman's forecast of $1.47 billion and the market consensus of $1.474 billion. Non-GAAP operating earnings per share were $0.60, higher than Goldman's estimate of $0.58 and the market expectation of $0.59. Concurrently, the company provided earnings per share guidance for the next quarter of $0.40, which is more than 11% above both Goldman Sachs' and the market's consensus expectation of $0.36.
Analysts at Goldman Sachs indicated that, given the optimistic outlook presented at ARM's recent investor day and the general market optimism regarding CPU growth prospects, investor expectations were significantly raised before the earnings report. Consequently, the slight outperformance in the actual results is unlikely to provide further momentum for the stock price, and the shares are expected to remain volatile in the near term.
Goldman Sachs reaffirmed its Sell rating on ARM Holdings with a 12-month target price of $125. Based on the closing price of $208.84 the day before the report's release, this implies a potential downside of 40.1%.
Quarterly Performance: Strong Licensing Revenue Offsets Royalty Shortfall According to the Goldman Sachs report, ARM's fiscal Q4 revenue was $1.49 billion, representing a year-over-year increase of 20.1% and a quarter-over-quarter increase of 20.0%. Breaking down the segments, licensing and other revenue was $819 million, exceeding Goldman's forecast of $783 million and market expectations of $775 million by approximately 4.6% and 5.7% respectively, marking a particularly strong performance. Conversely, royalty revenue was $671 million, falling short of Goldman's forecast of $688 million and market expectations of $700 million by about 2.4% and 4.1% respectively, representing a relative weakness for the quarter.
The non-GAAP operating profit margin was 49.1%, higher than Goldman's forecast of 47.2% and the market consensus of 47.7%, exceeding by 185 basis points and 138 basis points respectively. Non-GAAP operating profit was $731 million, approximately 4% above market expectations.
Next Quarter Guidance: Revenue Slightly Beats, EPS Guidance Significantly Exceeds ARM's revenue guidance for the next quarter is in the range of $1.21 billion to $1.31 billion, with a midpoint of $1.26 billion. This is slightly higher than Goldman's forecast of $1.247 billion and the market consensus of $1.241 billion, implying a year-over-year growth of approximately 19.7%.
The outperformance in EPS guidance is more pronounced. The company guided for non-GAAP operating EPS in the range of $0.36 to $0.44, with a midpoint of $0.40. This exceeds both Goldman Sachs' and the market's consensus expectation of $0.36 by 12.4% and 11.8% respectively. This beat is primarily attributed to operating expenses coming in significantly lower than expected. The company guided for non-GAAP operating expenses of $760 million, substantially below Goldman's forecast of $807 million and the market expectation of $804 million.
Elevated Valuation: $125 Target Price Implies 40% Downside Despite the slight beats in both results and guidance, Goldman Sachs maintains its Sell rating. The core rationale is that the current valuation already excessively reflects market optimism regarding ARM's growth prospects. Goldman Sachs arrived at its 12-month target price of $125 by applying a price-to-earnings multiple of 50x to a normalized EPS estimate of $2.50.
Based on Goldman's forecasts, ARM's EPS for the fiscal year ending March 2027 is estimated at $2.10, implying a P/E ratio of approximately 99.6x based on the current price. For the fiscal year ending March 2028, EPS is forecast at $2.80, yet the corresponding P/E ratio remains high at 74.5x. Goldman Sachs also projects revenues of $5.881 billion and $7.851 billion for the fiscal years ending March 2027 and March 2028, respectively, with EV/EBITDA valuation multiples of approximately 78.7x and 59.1x. Key upside risks for the stock include stronger-than-expected growth in the data center business, greater-than-anticipated operating leverage improvements, and better-than-expected execution of the chip manufacturing strategy.
Goldman Sachs expects investors to focus on three main topics during the earnings conference call: first, the visibility and pace of recovery in the smartphone market; second, the latest progress in market share expansion for the data center business; and third, further details on the company's chip manufacturing strategy. Guidance and disclosures in these areas will be critical variables for the market to reassess ARM's medium-term fundamentals.