We recently compiled a list titled Jim Cramer’s Latest Watchlist: 10 Stock Picks You Need to Know. In this article, we will look at where ARM Holdings plc (NASDAQ:ARMH) stands among other stock picks in Jim Cramer’s latest watchlist.
In a recent episode of Mad Money, Jim Cramer advised investors to hold onto their stocks, anticipating a rebound after the market’s downturn. This advice proved useful as the Dow rose by 484 points or 1.16% and the NASDAQ also climbed by 1.16%, indicating that selling during the market decline was not the best choice.
“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”
Jim Cramer noted that the previous week was tough for economically sensitive and tech stocks, despite a mixed August employment report. This report suggested a balanced economic outlook, not too strong or weak, which initially seemed favorable for those hoping for Federal Reserve rate cuts. Despite this, Wall Street reacted negatively, shifting away from cyclical stocks to more recession-proof sectors like consumer goods and pharmaceuticals, with industries such as industrials and semiconductors being particularly affected.
Cramer observed that recession-proof stocks, such as pharmaceuticals and medical devices, have performed well recently but have seen significant gains, raising concerns about a potential correction.
“Today, recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”
He highlighted that historically, when the Federal Reserve is about to cut rates, it signals a shift in investment strategy. With the Fed expected to ease rates soon, Cramer suggests investors consider moving away from recession-proof stocks and look into more cyclical companies that could benefit from economic stimulus. While investing in cyclical stocks during a downturn is challenging, the anticipated rate cuts could make these stocks more attractive. Cramer advises maintaining diversification but being ready to adjust investment strategies based on the economic outlook.
“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he talked about several stocks. From there, we picked ten companies and discussed how hedge funds are investing in them. Finally, we rank these companies from those least owned to those most owned by hedge funds.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
ARM Holdings plc (NASDAQ:ARMH)
Number of Hedge Fund Investors: 38
Jim Cramer highlights ARM Holdings plc (NASDAQ:ARMH) as a top pick despite recent volatility. ARM Holdings plc (NASDAQ:ARMH), which has more than doubled since its re-listing a year ago, recently fell from $188 to $125 but got a boost after reports confirmed its chips are used in the new iPhone 16. Cramer believes the recent price dip presents a buying opportunity, emphasizing that ARM Holdings plc (NASDAQ:ARMH)’s technology is crucial in mobile devices and data centers.
“Don’t forget about ARM Holdings plc (NASDAQ:ARMH), the 7-nanometer kingpin whose stock has more than doubled since it came public again roughly a year ago. That’s despite pulling back from $188 in early July to $125 today. ARM Holdings plc (NASDAQ:ARMH) got a nice boost today on now-confirmed reports that its chip designs are being used in the just-launched iPhone 16. The processor is built on their architecture—that’s not a shocker, but some people don’t understand that.
On Friday, many were buzzing about the relentless decline in semiconductor firm Arm Holdings. The stock fell from $123 down to $117, and this was after already coming down from $132 at the end of the previous week. Arm seemed spent, done. Then, today, it shoots back up to $125—up 7%, supposedly because the new iPhone is using their latest design for custom processors. Something that should have been obvious to everyone for months! Was Friday’s sell-off based on pure emotion, and today’s rally just emotion right back? Or did nothing truly happen at all to Arm on either Friday or Monday?
ARM Holdings plc (NASDAQ:ARMH) is unique in that it designs semiconductor architecture, licenses it out to chipmakers, and collects royalties on their sales. This gives them a nice, predictable revenue stream. Their technology is firmly entrenched in data centers, mobile devices, and even the CPU portion of NVIDIA Corporation (NASDAQ:NVDA)’s top AI platforms. They’ll be big winners from a new smartphone upgrade cycle fueled by all this new AI functionality.
There’s a reason Apple Inc. (NASDAQ:AAPL) went with ARM Holdings plc (NASDAQ:ARMH)’s architecture—they dominate the mobile space. Again, I’d be a buyer into the recent weakness because I think the long-term upside potential is enormous, and I don’t mind that it’s up that much today. It can go further.
Here’s the bottom line: it’s time to fall back in love with semiconductors. Some of the most beaten-down chip stocks have been punished enough, and now you’re finally getting a chance to buy ARM Holdings plc (NASDAQ:ARMH) and Micron Technology, Inc.(NASDAQ:MU) at a discount.”
ARM Holdings plc (NASDAQ:ARMH) is an attractive investment due to its strong financial performance and strategic role in the tech industry. In Q1 FY2025, ARM Holdings plc (NASDAQ:ARMH) reported earnings per share of $0.40, beating the expected $0.34, and revenue of $939 million, which was higher than the forecast of $903.57 million. This growth, a 3.92% increase over estimates, is mainly due to rising royalty revenue from ARM Holdings plc (NASDAQ:ARMH)’s Armv9 technology.
ARM Holdings plc (NASDAQ:ARMH)’s partnership with Apple Inc. (NASDAQ:AAPL) further boosts its prospects, as the upcoming iPhone 16 will feature ARM’s chips, highlighting ARM’s key role in mobile and AI technology. This partnership has already driven a 60% increase in ARM Holdings plc (NASDAQ:ARMH)’s stock in 2024, with investors expecting continued growth in royalty revenues.
Overall ARMH ranks 8th on our list. While we acknowledge the potential of ARMH, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article was originally published on Insider Monkey.
