To The Moon

$ARM Holdings(ARM)$ is set to report its fiscal third-quarter results tomorrow, Wednesday, February 4, after the market closes. The company is currently at a critical junction where its high valuation is being tested against the reality of its "AI everywhere" narrative.

Below is an analysis of the upcoming earnings, key metrics to watch, and a comparison with AMD in the context of the AI growth cycle.

Q3 2026 Earnings: The Numbers to Beat

Analysts have set a high bar for ARM, following a streak of earnings beats in 2025.

ARM Holdings (ARM) reported its fiscal Q2 2026 results on November 5, 2025. It was a "beat and raise" quarter that initially saw a muted market reaction, highlighting the intense scrutiny on AI valuations.

Fiscal Q2 2026 Performance Summary

ARM delivered record-breaking results, marking its third consecutive quarter with over $1 billion in revenue.

Total Revenue: $1.14 billion, up 34% YoY, beating consensus estimates of $1.06 billion.

Adj. EPS: $0.39, beating the consensus of $0.33.

Royalty Revenue: $620 million (up 21% YoY). This was driven by the transition to the Armv9 architecture, which commands higher royalty rates, and a doubling of data center royalties (Neoverse).

Licensing Revenue: $515 million (up 56% YoY). This massive jump was fueled by high demand for Compute Subsystems (CSS) as companies rush to design custom AI silicon.

Operating Margin: Improved to 41.1% (up from 38.6% a year ago).

The "Lesson Learnt" from Guidance

Despite the strong performance and an upward revision for Q3 guidance ($1.225B vs. the $1.1B expected), the stock experienced volatility. The lesson for investors was clear: Execution is now secondary to Valuation and Spending.

1. The "Invisible" AI CapEx

ARM revealed a significant hike in R&D spending ($648M, up 31% YoY). The lesson here is that maintaining an AI lead is expensive. Management signaled that they are investing heavily in "complete system" designs and chiplets. For investors, this means that even as revenue scales, margin expansion may be capped in the near term by the sheer cost of engineering the next generation of AI chips.

2. The "CSS" Multiplier

ARM is moving from selling "blueprints" to selling "subsystems" (CSS). The lesson is that ARM’s revenue is no longer just tied to the number of chips sold (volume), but the complexity of the chip (value). By providing more of the pre-designed "guts" of a chip, ARM is successfully increasing its "rent" on every device, particularly in high-end smartphones and AI servers.

3. Valuation Sensitivity

The most painful lesson was that a "Beat and Raise" is no longer enough. Because ARM trades at a forward P/E often exceeding 100x (GAAP) or 50x-60x (Adjusted), any hint of "lumpy" licensing revenue or rising OpEx can cause a sell-off. Investors learned that with ARM, you aren't just buying a chip company; you are buying an "AI Option" that requires perfection to move higher.

Strategy for Tomorrow (Q3 Earnings)

Given the Q2 history, tomorrow's report will likely follow a similar pattern. If you are looking at that Bull Put Spread we discussed:

• Watch the Royalty Mix: If Armv9 adoption stalls or data center growth dips below "doubling," the $105 floor might be tested.

• Mind the Gap: ARM often "gaps" up or down at the open. Waiting for the first 15 minutes of trading on Thursday to see if the Q2 "sell on news" pattern repeats could save you from a sharp delta move.

To trade ARM post-earnings using a Bull Put Spread, you are essentially betting that the stock will stay above a certain "floor" price. This strategy is ideal when you are neutral-to-bullish and want to take advantage of the high Implied Volatility (IV) crush that happens immediately after the announcement.

As of February 3, 2026, ARM's stock is trading around $107, and the options market is pricing in a significant swing.

The Expected Move

The "expected move" tells you the range the market anticipates the stock will trade within by the end of the week.

Implied Move: Based on current straddle pricing, the market expects a move of approximately ±9.2% to 10.1% by the February 6 expiration.

The Price Range: * Upper Bound: ~$126.50

Lower Bound: ~$103.50

Historical Context: In the last 9 quarters, the options market has overestimated the move 67% of the time. This makes credit-selling strategies (like the Bull Put Spread) statistically attractive.

How to Construct the Bull Put Spread

A Bull Put Spread (Credit Put Spread) involves selling a put at a higher strike and buying a put at a lower strike for protection.

The Setup (Example for Feb 6 Expiration)

To maximize safety while collecting decent premium, you typically want to set your Short Put at or slightly below the lower bound of the expected move ($103.50).

Net Credit: If you collect $1.50 ($150 per contract), this is your maximum profit.

Max Risk: Strike Width ($5.00) - Net Credit ($1.50) = $3.50 ($350 per contract).

Break-even: Short Strike ($105) - Credit ($1.50) = $103.50.

Trading Post-Earnings (The "IV Crush" Play)

Trading after the earnings report (on Thursday morning, Feb 5) can often be safer than holding through the event:

Wait for the Reaction: If ARM beats expectations and the stock jumps to $125, the puts you were looking at will lose value rapidly.

Sell the Fear: If ARM reports and the stock stays flat or dips slightly, the Implied Volatility (IV) will collapse (the "IV Crush"). This causes the value of the puts you sold to drop, allowing you to buy them back for a profit much faster than waiting for time decay.

The "Safety Net" Strategy: Many traders wait for the initial 30-minute "flush" after the market opens on Thursday. If the stock holds its support levels (e.g., $110), they sell the put spread then to capture the high remaining premium before it evaporates.

Key Metrics for Investors

While the "top-line" numbers matter, ARM's stock price often reacts more to these specific underlying indicators:

Armv9 Adoption & Royalty Rates: Armv9 typically commands roughly double the royalty rate of the older Armv8. Investors will look for what percentage of total royalty revenue now comes from v9, as this is the primary engine for margin expansion.

Data Center Momentum (Neoverse): Hyperscalers like Amazon (Graviton), Google (Axion), and Microsoft (Cobalt) are increasingly bypassing traditional x86 chips (Intel/AMD) for ARM-based custom silicon. Look for mentions of market share gains in the cloud.

The "First-Party" Chip Strategy: ARM recently announced plans to develop its own AI accelerators for data centers. Management's commentary on the R&D costs vs. the competitive threat to its own customers (like Nvidia or Qualcomm) is a major wildcard.

ACV (Annualized Contract Value): This is a leading indicator. Last quarter it grew 28%; a slowdown here could signal a cooling in the AI design cycle.

ARM Holdings (ARM) Price Target

Based on 34 analysts from Tiger Brokers app offering 12 month price targets for ARM Holdings PLC ADR in the last 3 months. The average price target is $155.49 with a high forecast of $215.00 and a low forecast of $81.44. The average price target represents a 45.42% change from the last price of $106.93.

Short-Term Trading Opportunities

ARM is a high-beta stock (currently ~4.3), meaning it swings much more violently than the broader market.

The "Valuation Trap": ARM trades at a forward P/E of ~48x-58x (estimates vary), which is nearly double the industry average. Even a "beat and raise" can result in a sell-off if the guidance isn't "perfect."

Post-Earnings Volatility: Historically, ARM has seen double-digit percentage moves post-earnings. A short-term strategy might involve Straddles or Strangles (options) to bet on volatility rather than direction, as the stock is currently 37% off its 3-month highs, suggesting a lot of "fear" is already priced in.

The "Dip-Buy" Level: If the stock tests the $110 - $115 range on a neutral report, it may attract long-term buyers looking for an entry before the fiscal year-end.

ARM vs. AMD: The AI Narrative

Both companies are "AI plays," but they occupy different parts of the stack.

ARM Holdings

Moat: Energy efficiency. In an era of power-constrained data centers, ARM wins by default.

Growth Profile: Scalable and high-margin. ARM doesn't have to manufacture chips; it just collects "rent" on every design.

AI Role: The "Brain" of the system. While Nvidia/AMD make the GPUs (the muscle), ARM makes the CPUs (the coordinator) that are increasingly integrated (e.g., Nvidia Grace-Blackwell).

AMD $Advanced Micro Devices(AMD)$

• Moat: Direct competitor to Nvidia in the GPU (MI300/MI400 series) and Intel in x86 CPUs.

• Growth Profile: Highly cyclical and capital-intensive. AMD's growth is tied to selling physical hardware.

• AI Role: The "Workhorse." AMD's growth is more "explosive" when they take GPU market share, but more "fragile" if Nvidia crushes them on performance.

Verdict: ARM is likely to show more consistent, long-term structural growth because it is embedded in almost every custom chip project (Apple, Google, Amazon). AMD offers higher short-term upside potential if it can prove it is a viable #2 to Nvidia, but it faces much stiffer competition than ARM does in its respective niche.

ARM vs. AMD: The AI Growth Factor

While you asked about trading ARM, it's vital to compare its AI narrative to AMD's to ensure you aren't fighting a sector-wide trend.

ARM's Edge: ARM is becoming the "tax" on AI. Every time a cloud provider (AWS, Google, Microsoft) builds a custom AI chip, they use ARM’s architecture. They are less exposed to the "GPU wars" and more tied to the efficiency of the entire data center.

The Risk: ARM’s valuation remains much loftier than AMD's. AMD trades on hardware sales (which can be lumpy), while ARM trades on royalty growth. If ARM's royalty growth from its newer Armv9 architecture (which has 2x higher royalties) shows any sign of slowing, the stock could break below its $110 support regardless of how "good" the AI demand looks.

Summary

ARM Holdings (ARM) is set to report its fiscal Q3 2026 earnings on February 4, 2026, amid a backdrop of high expectations for its "AI everywhere" strategy. Following a record-breaking Q2, the company must now prove that its premium valuation—currently trading at roughly 47x–58x forward earnings—is justified by sustained structural growth.

The Forecast: What to Expect

• Revenue: Analysts estimate $1.23 billion, representing a ~25% YoY increase.

• Adjusted EPS: Consensus is $0.41 (Guidance range: $0.37 – $0.45).

• Growth Drivers: The core of the bull case remains the Armv9 architecture, which yields significantly higher royalties than previous generations. Investors are also watching for continued doubling in Neoverse (Data Center) royalties as hyperscalers like Amazon, Google, and Microsoft ramp up custom silicon production to offset rising energy costs.

Key Metrics to Watch

1. Royalty Expansion: Management has signaled that royalty revenue should grow just over 20% YoY. A beat here would signal that ARM is successfully taking market share from traditional x86 providers (Intel/AMD).

2. Licensing vs. R&D: Licensing revenue is expected to grow 25%–30%. However, watch the Operating Expenses, which hit $648M last quarter. Increased R&D spending is necessary for AI leadership but can squeeze short-term margins.

3. ACV (Annualized Contract Value): This is the best lead indicator for future royalty growth. If ACV maintains its ~20%+ trajectory, it confirms that the AI design pipeline remains robust.

Investment Lesson & Outlook

The primary lesson from recent quarters is that execution is no longer enough; ARM’s stock price is highly sensitive to guidance. Even with a "beat and raise," the stock often faces volatility if the outlook isn't perfect. Unlike AMD, which scales through hardware sales, ARM scales through high-margin IP. This makes it a lower-risk play on "AI volume" but a higher-risk play on "valuation compression" if growth slows.

Appreciate if you could share your thoughts in the comment section whether you think ARM could turn things around with a very significant execution combined with much positive guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.