Keybanc analyst John Vinh initiated coverage on ARM Holdings Plc
Vinh expects ARM to increasingly benefit from key semiconductor design trends, including rising chip complexity, as evolving compute chip architectures increasingly compensate for scaling challenges due to the demise of Moore's Law.
In conjunction with the higher value-add Arm provides through higher-performance compute cores and its compute subsystem platforms, which reduce costs and time to market, Vinh sees the industry increasingly reliant on Arm's IP over time.
As compute requirements increase, the analyst expects customers to adopt Arm's latest generation v9 core, which he estimates will increase royalties from 3% for v8 to 5% for v9.
Additionally, the analyst sees higher adoption of Arm's compute subsystems, which provide significant cost and time-to-market savings and drive meaningfully higher royalty rates (10% at the high end).
He expects the opportunity for royalty rate expansion to be the most prominent within server and mobile applications.
Having diversified beyond mobile, as non-client revenue represents 42% in FY23, compared to 24% in FY16, Vinh expects Arm to sustain market share gains across data centers, networking, auto, and IoT.
Most notably, he anticipates share gains will be the greatest within cloud infrastructure, where share will likely increase from 10% in 2022 to 28% in 2025, and in automotive, ADAS market share will likely increase from 42% in 2022 to 78% in 2031.
The analyst said share gains will be driven by increased compute requirements and greater adoption of Arm IP within these end markets.
Vinh projects 2Q revenue of $747.2 million vs. consensus $743.4 million and EPS of $0.26 vs. consensus $0.25.
Price Action: ARM shares traded lower by 1.49% at $51.51 on the last check Wednesday.
