Arm Holdings (ARM -0.30%) has long stood out in the semiconductor industry, particularly regarding its mobile phone processors. Instead of manufacturing these processors, it earns revenue by licensing its designs to companies such as Samsung, Apple, and Qualcomm.
Despite its importance to major industry players, it did not launch its initial public offering (IPO) until September 2023, and its value has nearly tripled since the original IPO price. Amid those gains, investors may wonder whether the stock will mint millionaires, or do its past gains make such a scenario unlikely?
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The state of Arm stock and growth prospects
While investors may assume that Qualcomm and Samsung, among others, thrive on in-house chip designs, the truth is that these companies could not design their mobile chipsets without Arm's help, highlighting the essential role it plays in the mobile phone industry.
Unfortunately, despite playing this critical role in the industry, it may not make investors as wealthy as some may hope. The company came into existence in 1990, meaning it remained private for 33 years and built its current client base operating that way.
Consequently, it had grown to a substantial size by the time it launched its IPO. When the stock came to the market, it debuted with a market cap exceeding $65 billion, and it has more than doubled to over $160 billion as of the time of this writing.
To put that into context, if you invested $10,000 today, and Arm somehow grew to the point that it matched Nvidia's market cap of $4 trillion (an unlikely prospect), your investment would increase 25-fold.
That would take the position's value to about $250,000, far short of "millionaire" status. For that investment to reach $1 million, the market cap would have to grow to about $16 trillion.
To add further context, Amazon had a market cap of less than $1 billion early in its history, leaving a massive runway for growth given today's $2.4 trillion market cap. Unfortunately, due to the timing of Arm's IPO and the size of the company, it significantly reduced the potential for an explosive growth runway for shareholders.
The financial case for Arm Holdings stock
Moreover, one has to wonder whether Arm can justify the current lofty market cap given its financials. In fiscal 2025 (ended March 31), Arm reported a net income of $792 million from just over $4 billion in revenue. That amounted to 159% profit growth.
Also, analysts forecast net income growth of just 9% in the next fiscal year before reaccelerating to a 34% profit increase in fiscal 2027.
Still, that leaves the stock with a 200 P/E ratio, and even when measured by the forward P/E ratio, the forward earnings multiple of 85 likely means investors have to pay a considerable premium for this stock.
Will Arm Holdings stock help you become a millionaire?
Arm Holdings is undoubtedly an essential company whose stock offers the potential for considerable returns. However, the stock is unlikely to turn small investors into millionaires.
The most significant challenge to Arm minting millionaires is its size. At nearly $160 billion, it has already amassed considerable growth. Hence, to turn a $10,000 investment into $1 million, it would have to grow to a market cap that is quadruple the current record market cap for a public company.
Additionally, its current profit levels suggest that the stock's price has outpaced its fundamentals, making its short- and medium-term prospects for a rising stock price uncertain.
Considering the company's role in designing mobile processors, Arm is in a strong position to deliver shareholder gains in the long run. But unless you can invest considerably more than $10,000 in Arm stock, you should not expect that investment to reach a $1 million size.
