Arm Holdings Surged on Nvidia's New Chip Announcement. Is It Too Late to Buy ARM Stock?

Arm's (NASDAQ: ARM) stock has surged more than 250% in 2026. A large portion of that gain can be attributed to Nvidia's (NASDAQ: NVDA) introduction of a new AI chip for Windows PCs at Computex in early June. Nvidia will design the chip, but it will be built on Arm's architecture and could significantly boost the chip designer's royalty and licensing revenue.

Is it too late to buy Arm's high-flying stock to profit from those gains? Let's review its business model, other recent catalysts, and valuations to find out.

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How fast is Arm growing?

Arm's chip designs are used in about 99% of the world's smartphones. It took over the market by designing smaller and more power-efficient chips than Intel and AMD. By prioritizing low power consumption over raw processing power, Arm's chip designs were ideal for mobile devices, wearables, cars, and Internet of Things (IoT) devices.

Instead of producing its own chips, Arm initially licensed its designs to chipmakers like Qualcomm, MediaTek, Nvidia, and Apple. Arm still generates most of its revenue from those licensing deals, but it launched its own first-party data center chips (manufactured by TSMC) for hyperscalers in 2025.

In fiscal 2025 (which ended in March 2025), Arm's revenue and net income rose 24% and 159%, respectively. In fiscal 2026, its revenue and net income grew 23% and 14%, respectively.

The robust demand for Arm's AI-optimized Armv9 designs across the smartphone, cloud, data center, and auto markets drove most of that growth. Those high-end designs generate much higher royalties and licensing fees than its non-AI chip designs.

In the fourth quarter of fiscal 2026, its data center revenue more than doubled year over year -- indicating it's becoming a linchpin of the booming generative AI and agentic AI markets. Nvidia's recent announcement -- similar to Qualcomm's expansion beyond mobile devices into PCs -- could also make ARM a major threat to Intel and AMD in the Windows PC market.

Is it too late to buy Arm's stock?

From fiscal 2026 to fiscal 2029, analysts expect Arm's revenue and net income to grow at CAGRs of 28% and 49%, respectively. However, its stock already trades at 337 times this year's earnings and 74 times this year's sales. It's tough to justify those sky-high valuations, especially when Nvidia only trades at 23 times this year's earnings and 13 times this year's sales.

Arm's business is firing on all cylinders, but investors shouldn't pay the wrong price for the right stock. Therefore, it's smarter to wait for a pullback than to chase its explosive gains.

Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.