Investors are braced for shares Arm Holdings PLC (NASDAQ:ARM) to fall sharply on the back of lower-than-expected earnings after the bell Wednesday.
But one leading investment bank is still sold on the chipmaker's long-term growth potential, but warns that limited visibility into customer demand could weigh on performance in the coming year.
While Citi has not changed its recommendation, it flagged short-term uncertainty as a drag on investor confidence.
Arm’s fundamentals remain strong. The company reported healthy licensing activity in the fourth quarter and a continued rise in royalty rates, reflecting its ability to extract more value from its intellectual property.
These trends underpin Citi’s view that Arm is well-positioned to benefit from structural drivers, including growing adoption in artificial intelligence and high-end smartphones.
However, royalty revenues are exposed to fluctuations in global end demand, which may come under pressure from trade tensions and new import tariffs.
While customer licensing is expected to hold up, Citi believes that weaker hardware sales could constrain revenue growth in the near term.
Despite this, the analysts remain positive on the long-term picture, arguing that earnings could still grow by between 25% and 30% per year.
That growth, they say, continues to justify a premium valuation for investors prepared to look beyond short-term volatility.
Ahead of the opening bell, the shares were indicated to open 8% lower at $114.52.