Arm's CEO Sees a Massive Opportunity in Agentic AI. Here's How Big the Businesses Might Get in 5 Years

Artificial intelligence (AI) is transforming the way many businesses operate. Agentic AI, in particular, is an exciting opportunity as it involves multi-step processes, resulting in significant savings and efficiencies for companies.

One tech company that sees some exciting growth opportunities due to agentic AI is Arm Holdings (NASDAQ: ARM). The business recently announced an extremely bullish outlook that could make the tech stock a much hotter buy in both the short and long term.

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Arm has a new chip that could generate billions for the business

Arm CEO Rene Haas recently unveiled a new chip, AGI CPU, which is designed for AI inference. CPUs have been in greater demand due to the growing popularity of agentic AI, as they help manage multi-step processes, whereas GPUs are in greater demand when developing and training AI models. At a more mature stage, there's a greater need for CPUs, which is why Arm's new chip may be in high demand.

Haas projects that the demand is so significant that the chip's annual sales may top $15 billion by 2031, and that may even prove to be low. "We may be under-calling that number." But even at that seemingly modest figure, the company's revenue in five years could top $25 billion. That's a steep increase from the $4.7 billion it has generated over the trailing 12 months.

Is Arm's stock too expensive to buy right now?

Shares of Arm are up 34% this year, and the stock currently trades at around 200 times its trailing earnings. That's a steep multiple by any standard. Even based on analyst projections, its forward price-to-earnings multiple is high at 73. The danger with investing in a stock that is priced so high is that expectations are sky-high, and it's effectively priced for perfection; there's no margin of safety with the stock, and its future returns may be limited. With a market cap of around $160 billion, Arm's valuation is rich given its revenue, suggesting much of its future growth is already priced in.

As exciting a growth story as Arm's new chip may prove to be, I wouldn't buy the stock today given its enormous valuation. At a time when the market has been turning bearish on many other solid growth stocks, there are better deals to consider right now than Arm. While this may be a good stock to watch and track, it may not be the best one to buy today, and it may be due for a pullback in the near future.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.