Sustainable Growth Advisers, LP on Arm Holdings
Thesis
SGA views Arm as a high-quality long-term compounder benefiting from increasing adoption of Arm-based CPUs across data centers and AI workloads. Licensing and royalty growth, rising royalty rates and strong pricing power give the company a highly recurring revenue model with increasing participation across the compute stack. Management's outlook supports roughly 20% revenue growth despite expected handset weakness, and SGA sees continued share gains versus x86 architectures. The position was trimmed to below-average weight after strong performance because valuation had become less attractive.
“we continue to view the company as a high-quality, long-term compounder”
Key risks
- Valuation became less attractive after strong share-price performance.
- Expected weakness in handset markets could offset some data-center and AI growth.