Arm Holdings (ARM) Flexing Muscle Into Today’s Earnings
Arm Holdings (ARM) will report earnings after today’s closing bell on the heels of a runaway upside +109% move off the February lows near 100 as of yesterday’s close, with another quick surge that saw price rocket from prior highs from October near 183 to an all-time peak of 237.68 on Apr. 24 in only three trading days. Consensus analyst estimates come in at $0.58 for EPS against last year’s figure of $0.55 (+5.4%) and revenue projections are for $1.47B vs. $1.24B last year (+18.2%).
However, even after this strong upside push, the British semiconductor and software design company – in which Softbank (SFTBY) is the majority holder – remains a laggard behind the overall sector. ARM is up 71% during the past year, while the broader VanEck Semiconductor ETF (SMH) is up 140% in the same time thanks to extreme strength from memory chipmakers like Micron (MU), SanDisk (SNDK), Western Digital (WDC), and Seagate Technology (STX).
Unlike these memory companies or the powerful high-end chips made by companies like Intel (INTC), ARM focuses on small, energy-efficient chips that generate relatively little heat that are widely used in all manner of electronics, from mobile devices to laptops to servers.
Recent analyst activity is more bullish about ARM’s earnings prospects. UBS analysts yesterday raised their price target to $245 from $175 and kept their buy rating, reflecting optimism about ARM’s CPU technology and AI strategy. Wells Fargo also boosted its view as well, bumping their own price target to $220 from $175 and maintaining its buy rating on Apr. 29.
The chart for ARM presents an interesting technical picture. Price saw a gap down to the tune of -8% on Apr. 28 that coincides with reports that Taiwan Semiconductor (TSM) sold 1.11M shares of ARM for approximately $231M, which represented TSM’s entire stake. Although price retreated from the extreme aforementioned highs near 237 to around 208 as of yesterday’s close, the price pattern fits the idea of a bull pennant-type pattern; a sideways consolidation period in which price bounces in an increasingly narrowing triangular range after a strong upside move.
The conventional outlook by those seeking to make a play on this pattern would be that after the bulls regroup and adjust positions or take profits, price would rise once again and break above the initial high into the next leg of the uptrend. This is certainly not intended to suggest that this is going to happen, rather just to provide context about the typical reasoning behind this common trading pattern.
The options market seems to think a push into new highs is possible based on the potential expected move. The May 8 expiration on Friday shows a range of about +/-23, which translates to a roughly 9.9% move. The May 15 monthly expiration next week, on the other hand, gives a range of +/-29.5 (about 12.7%), which equates to highs above that all-time top.
Featured Clips
