Arm Holdings (ARM): Record Revenue, But AI Growth Faces Cyclical Headwinds
We recently published a list of . In this article, we are going to take a look at where Arm Holdings plc (NASDAQ:ARM) stands against other trending AI news updates on Wall Street's radar.
Sarah Guo, founder of Conviction, spoke on Bloomberg Technology about the evolving AI space and the impact of open-source models. She noted that AI has developed rapidly since her firm launched, reinforcing its belief in its long-term significance. Initially, the firm invested in application companies and vertically integrated businesses, a strategy she believes remains relevant today. She pointed out that competition among foundation models has increased significantly in recent weeks.
Guo also discussed Deep Seek and described it as a powerful model with multiple layers, including a base model, an instruction-tuned version, and a reasoning model. While DeepSeek's origins in a Chinese hedge fund surprised many, she sees its open-source nature as beneficial for developers and a challenge for the U.S. to stay competitive in AI. She also emphasized that no single country holds exclusive control over AI talent, making export restrictions less effective.
When the discussion shifted to investment trends, Guo explained that while AI is expanding economic opportunities across infrastructure, tooling, and model development, her firm prioritizes applications and industry-specific solutions. She noted that training large models remains costly, despite claims of lower expenses, and expects the most sustainable growth to come from application-focused companies.
Guo also discussed agentic AI and how it improves customer experiences in industries such as finance and travel. She explained that AI's ability to handle more complex tasks increases its value to businesses, making applications that automate tasks more attractive. As AI continues to advance beyond simple responses, she expects companies working on industry-specific automation to capture significant market value.
For this article, we selected AI stocks by reviewing news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey's database of 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points ().
Close-up of Silicon Die are being Extracted from Semiconductor Wafer and Attached to Substrate by Pick and Place Machine. Computer Chip Manufacturing at Fab. Semiconductor Packaging Process.
Number of Hedge Fund Holders: 38
Arm Holdings plc (NASDAQ:ARM) designs and licenses semiconductor technologies, including microprocessors and system IP products, serving markets like automotive, computing, and IoT.
On February 6, Bernstein maintained its Underperform rating on Arm with a price target of $100, due to concerns about cyclical challenges. Arm's Q3FY25 revenues reached a record $983 million, exceeding expectations, driven by strong licensing and royalties. However, v9 adoption has stalled at 25% of royalties, missing earlier growth projections. While Q4 guidance aligns with expectations, full-year revenue was only slightly revised upward. Bernstein highlighted the company's increasing reliance on related parties revenue, especially from China, and remains cautious on short-term performance, despite long-term growth potential in AI and related sectors. The firm said:
'There was significant commentary on AI traction, expectations for Compute Subsystems (CSS), and the broader ecosystem, indicating continued long-term potential. Arm emphasized its focus on building capacity to address these opportunities, suggesting a continued commitment to R&D spending. However, in the near term, even with the slight uptick in full-year guidance now slightly ahead of expectations, we believe the response from investors may be muted given current valuation levels. We remain cautious on cyclical headwinds for now, though we acknowledge the long-term story continues to develop positively.'
Overall, ARM ranks 2nd on our list of trending AI news updates on Wall Street's radar. While we acknowledge the potential of ARM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
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