Arm Stock Is Down More Than 40%. Here's Why I'm Staying on the Sidelines.

Arm Holdings stock has fallen over 40% from its 52-week high amid an AI sector sell-off triggered by debate over AI model development pace. However, the author argues the stock's underlying business remains solid with record Q1 revenue growth of 22% and 29% earnings growth, as Arm's royalty model depends on chip shipments rather than AI timelines. The main concern is valuation: at 79x forward earnings, the stock requires years of extraordinary AI-driven growth to justify its price, making the author cautious despite the company's strong fundamentals.