Invest with Henry on $ARM (Nov 1, 2026)
ARM has fallen about half from its early-year high but earnings still grow 22%; its licensing/royalty model drove 22% revenue growth to a record $1.29 billion and ~27% free-cash-flow margin, a Rule of 40 score near 49, with $3.9 billion cash and no long-term debt. It is still not cheap, high memory prices are reducing smartphone royalties, and a Qualcomm licensing dispute hangs over it, but the speaker expects ARM to rise after its November 4 earnings report.
Jump to any passage
Looking at ARM, the stock has fallen by about half since its high at the beginning of this year , but earnings are still growing at a rate of 22%. They have about $3.9 billion in cash and short-term investments and no long-term debt.
Now, speaking of ARM on the other hand , they design the blueprints for a large number of chips in the world. Every device needs a brain, and ARM designs many of those brains. Chip manufacturers pay licensing fees to ARM.
Next, basically consider it like a toll road. Okay , so as an investor you should look at ARMs and see all their cash flow. And it's basically licensing fees, which are very consistent, which is a lot like a toll road.
So, each chip pays a toll, a royalty on each sale. So, the more chip shipments, the more money ARM will make. It's like the more cars that pass through the toll, the more revenue the toll authority makes, right?
Revenue rose 22% last quarter to a record $1.29 billion, and free cash flow was nearly $1.4 billion over the past 12 months , about 27% of revenue. So, if you add 22% growth and 27% margin , it comes close to 49 according to the Rule of 40.
Is this AppLovin's number? However, 49 is a very good score.
Now, here's the real problem. ARM is not cheap, as even after the price drop, it is still trading at a much higher price relative to its earnings. The high price of memory is increasing the cost of phones , and it is reducing smartphone royalties.
In addition, a licensing dispute with Qualcomm is also hanging over the stock.
ARM will release their earnings report on November 4th , so a big change is expected and I think ARM will rise after the earnings report.