Loomis Sayles Global Growth Fund on Arm Holdings Plc
Thesis
Arm is the leading supplier of microprocessor intellectual property, earning licensing fees and long-lived royalty streams across mobile, cloud, automotive and IoT markets. Its newer Armv9 and Neoverse architectures are expanding the company beyond mobile, while the new AGI data-centre CPU potentially increases Arm's revenue opportunity substantially. Loomis Sayles expects roughly 30% compounded annual revenue growth, with operating income and free cash flow growing faster as high-margin royalties and the AGI business scale. The team believes the market underestimates Arm's sustainable growth and margin expansion and therefore values the shares below intrinsic value.
“We believe Arm’s shares embed expectations that underestimate the company’s sustainable growth and margin expansion opportunities.”
Key risks
- Newly licensed technology can take more than five years before it is commercialized into new products