Arm Holdings' Next Earnings Report on July 29 Could Send the Stock Soaring. Here's Why.

Arm Holdings (Nasdaq: ARM) has been one of several breakout chip stocks this year.

The company, best known for licensing its CPU designs, is up 142% this year, including a substantial pullback from its June peak. At one point, the stock was up more than 300%.

Arm has benefited from the bullish sentiment in the chip sector from the AI boom, as well as signs that CPU demand is soaring as AI needs shift from training to inference. The company also announced that it would make its own silicon for the first time, designing the Arm AGI CPU, which is expected to start contributing to revenue in its fiscal fourth quarter, which ends in March 2027.

The company has said it expects the new CPU chip to drive $15 billion in revenue by fiscal 2030, and it expects total revenue of $25 billion then, a significant acceleration from the $1.05 billion it generated in fiscal 2026.

Arm is set to report first-quarter earnings on July 29. Will the stock jump on the news? Let’s take a closer look at what to expect.

Image source: The Motley Fool.

The good news for Arm

The arms race for AI computing power has continued over the last three months, and the early signs are that capital expenditures for AI infrastructure, such as chips, are continuing to rise. Alphabet is the only one of the four major hyperscalers to have reported earnings this quarter, and the company raised its capex forecast for this year from $180 billion-$190 billion to $195 billion-$205 billion, reflecting accelerating growth in its cloud computing division.

Capex increases from other cloud companies seem likely as well, and that favors Arm, whose designs are found in data center chips like Google Axion, Microsoft Cobalt, and Amazon Graviton, the three leading cloud computing companies.

Arm earns revenue in two ways: licensing and royalties. Royalty revenue is mostly predictable, so the variability in the company’s results tends to come from licensing. The continued growth in AI spending bodes well for new license sales.

Finally, investors will be keen for updates on the AGI CPU. Arm has already said that it sold out its initial capacity for the chip, hitting $2 billion in commitments just weeks after the launch, double its initial forecast. Any updates on that are likely to move the stock. A production delay, for example, would send shares falling, while a more optimistic outlook would please investors.

One thing to remember

Even after falling by more than a third from its June peak, Arm is still an expensive stock, trading at a price-to-sales ratio of 56. That reflects its unique high-margin licensing model and the expected windfall from the AGI CPU. The valuation could put downward pressure on the stock, especially as shares have already soared this year, largely based on forward expectations around AI sentiment and the AGI CPU.

Arm stock also tends to be erratic following earnings. In the past, the stock has fallen after hours, seemingly based on guidance or a cautious comment from management, only to rally during the regular trading session.

In other words, investors should expect volatility following the earnings release. Based on the tailwinds in AI and Arm’s competitive advantage in power-efficient CPU technology, the components are there for a post-earnings pop. If it doesn’t happen on Wednesday, Arm still looks like a smart bet for the long term as it moves into silicon with the AGI CPU.

Jeremy Bowman has positions in Amazon and Arm Holdings. The Motley Fool has positions in and recommends Alphabet, Amazon, Arm Holdings, and Microsoft. The Motley Fool has a disclosure policy.