Despite a microchip sector pullback, Arm Holdings (NASDAQ:ARM) stock is one of the best technology stocks investors can own. A buy-the-dip opportunity appears to have opened with Arm stock. ARM stock is taking a hit as investors reallocate capital from tech to value and small-cap securities.
The drawdown has nothing to do with Arm Holdings operations or the fundamentals underpinning its share price. Any reversal is likely to be short-lived. Despite the current pullback, Arm stock is still up 166% since the company’s initial public offering in September 2023.
Nasdaq 100 Inclusion
The growth of British chipmaker Arm’s stock has been so great that it was recently added to the Nasdaq 100 index on June 24 of this year.
In choosing to add Arm Holdings to the index, Nasdaq singled out the company’s share price appreciation and also its nearly $170 billion market capitalization that was achieved in short order after its IPO.
The Nasdaq 100 is rebalanced quarterly and factors in market capitalization and stock performance when adding and removing securities.
Arm stock benefits from inclusion in the Nasdaq 100 as mutual funds and exchange-traded funds that track the index must now buy its shares.
The Nasdaq 100 index has a market value of $22 trillion.
Strong Financial Results
Pushing Arm stock higher since its IPO have been strong financial results that show both growing sales and profitability at the microchip designer.
For its most recent quarter, Arm reported revenue of $928 million, a 47% increase from a year earlier. The sales growth was driven by Arm’s licensing unit, which grew 60% to $414 million during the quarter.
The company said demand for its AI chips is powering its overall sales growth.
Arm’s royalty revenue grew 37% year-over-year to $514 million in the quarter because of its recently introduced “Armv9” microchip. The royalty revenue was a record amount for the company.
In terms of profit, Arm earned 36 cents per share, beating forecasts of 31 cents a share. Analysts and investors have applauded the strong growth and profitability of Arm Holdings, leading them to bid up the share price.
Buy Arm Stock
While it is true that ARM stock has taken a hit lately, the decline is due entirely to a broad sector rotation in the market. The decrease in the share price is not because of any internal problems at the company.
On the contrary, Arm continues to post strong financial results, is profitable, and has just been added to the Nasdaq 100 index. Since its IPO, Arm Holdings stock has more than doubled, with continued gains likely. As such, investors should take advantage of the current dip and buy Arm stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
