Semiconductor stock Arm Holdings (ARM) jumped 6.27% today, with investors cheering a Financial Times report claiming that Arm will launch its own chip manufacturing initiative - with Meta Platforms (META) as a key inaugural customer. Arm reportedly plans to unveil its first in-house designed CPU for data centers as early as summer 2025, marking a dramatic shift from its traditional business model of licensing chip designs. The chip will be specifically designed for server applications in large data centers, with a customizable architecture to meet Meta's requirements.Â
ARM stock has now gained more than 37% over the past year, outperforming the VanEck Semiconductor ETF (SMH) and its return of 26.3%.
Based on the current data, ARM stock appears to be significantly overvalued. The stock’s forward adjusted price/earnings (P/E) ratio is 96.68x, which is substantially higher than key competitors like NVIDIA (NVDA) at 44.41x; Advanced Micro Devices (AMD) at 23.55x; and Taiwan Semi at 22.89x.
Plus, ARM's forward price/sales (P/S) ratio is 40.98x, which is extraordinarily high compared to its peers. For comparison, TSM trades at 7.71x sales and AMD at 5.68x.Â
Despite ARM's strong market position, the semiconductor stock is trading at a premium that's difficult to justify, even with optimistic growth projections. While it's a quality company with good growth prospects, investors might want to wait for a more reasonable entry point, as the current valuation implies growth expectations that may be challenging to achieve in the competitive semiconductor landscape.Â
This article was generated with the support of AI and reviewed by an editor. On the date of publication, the editor had a position in: AMD , NVDA , SMH . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
