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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.
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.
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