1 Reason Why Arm Holdings Stock Could Soar
Arm Holdings (NASDAQ: ARM) often seems misunderstood by the stock market. The company has a unique business model as it licenses its CPU designs and then earns royalty revenue when the products with those designs are sold.
That misunderstanding has manifested itself in the response to its earnings reports. For instance, the stock initially fell on Wednesday after it reported earnings, but then climbed in regular trading on Thursday. There were some valid reasons for the initial sell-off. Investors are spooked about declining production in the smartphone sector, which makes up Arm's biggest source of royalty revenue, due to the memory shortage.
However, Arm has less exposure to weakness in the smartphone sector than it might seem since partners like Mediatek are cutting production of lower-end chips, which provide much less royalty revenue to Arm than its newer designs do.
Source Fool.com
