We all know that tech companies are changing and enhancing the way we live. If you would have told me 20 years ago that I’d be able to ask 8,000 “friends” on a social media website what they thought of a boutonniere that I was sporting — which I actually did recently — I would never have believed you.
With these advancements come opportunities to make you some money. I’ve talked to you about some already, and today I want to tell you my thoughts on ARM Holdings plc (ADR) (NASDAQ:ARMH), a United Kingdom-based company that adds a little bit of diversity away from the touch-based tech companies we’ve talked about lately.
This company doesn’t physically build its technology, it just licenses out its ideas. And it’s working exceptionally well.
ARMH is the world’s leading semiconductor intellectual property (IP) company, designing microprocessor cores that consist of videos and graphics. It coins itself as the “architect of the digital age” — and let me tell you, they really are.
Rather than manufacturing and selling their semiconductor chips, ARMH designs and then licenses its intellectual property to a network of the world’s leading semiconductor and systems companies. ARMH then collects royalties on its licensed IP.
For the most part, these licensing revenues are collected for up to four years, but the royalties are collected for about 20 years. And because of this, the royalties business has actually been growing at a better compounded annual rate of growth (CAGR) than the licensing business.
ARM Holdings is in a great place right now, situated perfectly between several different — and quickly growing — industries:
- The smart phone industry is expected to be a $25 billion industry in the next few years. Well, ARMH is the brains behind many of our populations’ smartphones and tablets, and they’ve already got a solid market share — about 85%!
- The embedded intelligence industry — once again we’re talking smart devices and wearables — is another $25 billion industry. ARM Holdings already has a 10% market share here and I believe they’re going to keep growing big time.
- The enterprise infrastructure industry, which includes routers, switches, etc., is yet another $25 billion industry, and ARMH has a solid 25% share of the market.
Not only does this company have a solid business model as well as a solid footing in many of the market’s most lucrative industries, AMRH has also proved that it is great at execution. Quarterly results have beaten the Street over the last year, and earnings estimates for full-year 2016 are already starting to rocket higher.
And take a look at the chart:
While it’s pulled back a bit since hitting a double-top toward the end of April, I find no reason to believe that its momentum has stalled. In my mind, any move through $55 will take ARMH stock up significantly higher. And ultimately, I think this a $75 name.
I’ve been in and out of ARMH stock for years, and I probably should have never left. I like this name a lot and I think it’s only a matter of time before it breaks through its ceiling.
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