Why Arm Stock Is Sinking Today

Arm (NASDAQ: ARM) stock is losing ground in Monday's trading. The company's share price was down 4% as of 11:30 a.m. ET. Meanwhile, Qualcomm (NASDAQ: QCOM) stock was up 1.6%.

Arm is falling today on the heels of a court ruling on Friday in its case against Qualcomm. The jury in the case did not come to an agreement over whether a business purchased by Qualcomm had breached a licensing agreement with Arm. The lack of jury consensus is effectively a win for Qualcomm.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Arm gets hit with a legal setback

Arm and Qualcomm have been locked in a contentious legal battle about whether Qualcomm wound up violating licensing agreements following its acquisition of semiconductor specialist Nuvia in 2021. Arm's position has been that Nuvia violated its licensing agreement after being purchased by Qualcomm -- and that Qualcomm owed back royalties and should renegotiate its licensing deal.

The matter of Nuvia violating its licensing agreement with Arm ended in a mistrial due to the jury being unable to reach a consensus on the issue. Meanwhile, the jury found that Qualcomm had not violated its licensing agreement with Arm. As a result of this outcome, Qualcomm will be able to continue selling its Oryon central processing units (CPUs) and related hardware utilizing Nuvia's technologies.

What comes next for Arm stock?

Friday's court results represent a significant setback for Arm. In a coverage note before the market opened this morning, J.P. Morgan's analysts said that the rulings had given Qualcomm significant leverage. While it's possible there could be new litigation or that the two companies could renegotiate existing licensing agreements, Arm's position in the dispute has been weakened substantially.

Despite today's sell-off, Arm stock is still up roughly 68.5% across this year's trading and is valued at approximately 81.5 times this year's expected earnings. While the company still has a strong position in the semiconductor design architecture space, the recent court rulings make it less likely that the business will be able to secure big improvements for its licensing deals -- and that could pressure an already growth-dependent valuation.

Should you invest $1,000 in Arm Holdings right now?

Before you buy stock in Arm Holdings, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Arm Holdings wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $825,513!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of December 23, 2024

JPMorgan Chase is an advertising partner of Motley Fool Money. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Qualcomm. The Motley Fool has a disclosure policy.