The stock market is off to a decent start in the new year. The S&P 500 index is up 1.5% in the first two weeks of 2026, and there is a good chance that the benchmark index will continue to head higher as the year progresses.
Goldman Sachs' analysts expect U.S. stocks to rise for the fourth straight year, driven by a resilient economy, robust artificial intelligence (AI) infrastructure spending, and potential rate cuts by the Federal Reserve. The investment bank's strategists expect a 12% appreciation in the S&P 500 in 2026. Tech stocks are likely to play a central role once again in driving the stock market rally this year on the back of continued growth in AI spending.
The investment bank estimates that large hyperscalers increased their capital spending by 70% last year. The good part is that these hyperscalers are expected to bump up their capital spending at healthy double-digit rates in 2026. This probably explains why investors continue to remain bullish about the tech sector. The Nasdaq-100 Technology Sector index has already gained 3% in 2026, outperforming the S&P 500 so far.
It won't be surprising to see tech stocks deliver bigger gains than the S&P 500 for the rest of 2026, just like they have done in the past year. That's why it would be a good time to take a closer look at one such tech stock -- Arm Holdings (ARM 4.15%) -- that can capitalize on the broader market's rally and deliver handsome gains to investors.
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Arm Holdings' solid growth could help the stock regain its mojo
Arm Holdings has been under pressure in recent months despite posting impressive growth in revenue and earnings. Shares of the British technology company fell substantially in December 2025, driven by concerns about its expensive valuation and its ability to capitalize on the AI semiconductor boom.
NASDAQ: ARM
Key Data Points
It is worth noting that shares trade down 40% since hitting a 52-week high in late October 2025. However, a closer look at Arm's performance and prospects will make it clear that its pullback could be an opportunity for investors looking to add a growth stock to their portfolios.
Arm is known for designing and licensing chip architectures. It doesn't manufacture any chips of its own but designs the blueprints for processors that power several applications. The company gets its revenue from sales of licenses, as well as a royalty on the sale of each chip designed using its intellectual property (IP).
Arm's IP is used to design chips that power smartphones, cars, data centers, and other consumer electronics devices. In fact, almost all smartphone processors are designed using Arm's architecture. Additionally, the company has been gaining share in fast-growing areas such as networking and cloud computing.
Its share of the cloud computing market has increased by 11 percentage points in three years, sitting at 20% at the end of fiscal 2025 (which ended in March last year). Looking ahead, Arm could continue to gain more share in the lucrative data center market as major hyperscalers have been designing custom chips using the company's IP.
Moreover, the company's latest AI-focused architecture, Armv9, commands a higher royalty than the previous architecture. This explains why the company's royalty from the data center business doubled year over year in the second quarter of fiscal 2026 (which ended on Sept. 30, 2025). Its overall revenue jumped by an impressive 34% from the year-ago period, while earnings increased by 30%.
Arm's earnings are likely to grow at a healthy pace, and they may even outpace consensus expectations.
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Analysts expect solid upside from the stock in the coming year
Even though Arm stock has pulled back significantly in recent months, it trades at an expensive 138 times trailing earnings. However, the forward earnings multiple of 47 is way more reasonable, and points toward a significant acceleration that's expected in the company's bottom line.
Given that Arm's earnings growth is likely to accelerate as the Armv9 architecture contributes more toward its royalty revenue, the stock's forward earnings multiple seems justifiable. Additionally, analysts are upbeat about Arm stock's trajectory in the coming year. Its median price target of $180, as per 41 analysts covering the stock, points toward potential gains of 67% from current levels.
Arm could indeed deliver such gains by virtue of its ability to outpace Wall Street's growth expectations, making it a top growth stock to buy right now before it steps on the gas.
