Goldman Sachs analyst Toshiya Hari initiated coverage on ARM Holdings Plc (NYSE: ARM) with a Buy rating and a price target of $62.
Hari expects Arm to expand its presence in the smartphone market primarily through higher royalty rates and extend its reach across under-indexed applications today, including Data Centers, Automotive, and IoT. The analyst modeled a 3-year revenue and non-GAAP EPS CAGR of ~16% and ~36% through FY26, respectively, well above the median company in our Semiconductor and Semiconductor Capital Equipment coverage universe.
The analyst expects growth in Client royalty revenue and evidence of Arm ISA adoption in the Data Center to be accretive to earnings power and the stock's valuation multiple.
Hari projects projects revenue and EPS for FY24 at $2.98 billion and $1.01, and FY25 at $3.65 billion and $1.35.
BMO Capital analyst Ambrish Srivastava initiated coverage on ARM with a Market Perform rating and a price target of $60.
Arm is a much more diversified company with the most pervasive CPU architecture in the world.
In the higher-ASP carrying server and infrastructure market, while progress has been slow, particularly on the server side, momentum seems to be firm with the company, as Arm-based CPUs are making their way via AWS in hyperscalers and via Nvidia Corp (NASDAQ: NVDA) at the very high-end of compute. Arm is pervasive in AI as well. AI was 43% of annual royalty revenues in CY22 vs. 29% in CY20.
Arm will succeed in its pivot given its sheer benefits to its customers, including access to cutting-edge CPU technology and lower cost and time-to-market benefits.
Srivastava projects revenue and EPS for FY24 at $2.96 billion and $1.05, and FY25 at $3.7 billion and $1.39.
Mizuho analyst Vijay Rakesh initiated coverage on ARM with a Buy rating and a price target of $62.
Arm is a global leader in foundational semiconductor IP, shipping >30 billion chips annually and having>60% share of all semiconductor IP. ARM's revenue will likely grow at ~26% CAGR CY22-25E, and its industry TAM will likely grow by ~7% CAGR.
ARM's forecast outperformance relates to its market leadership and unique positioning amid secular trends like AI, flexibility, chip disaggregation, and higher royalty rates. Rakesh sees ARM growing top line and market share as it capitalizes on its significantly lower platform costs, flexibility, and a 15 million software developer ecosystem.
Rakesh projects revenue and EPS for FY24 at $2.96 billion and $1.05, FY25 at $3.7 billion and $1.39, and FY26 at $4.46 billion and $1.76.
Rosenblatt analyst Hans Mosesmann initiated coverage on ARM with a Buy rating and a price target of $85.
Arm is poised to ride secular solid growth trends in edge computing, AI, automotive, and IoT.
With its energy-efficient CPU architecture powering over 250 billion chips globally, Arm maintains a 49% market share.
The company is expanding beyond mobile into data centers, networking, automotive, and other growth segments.
Growth will be driven by increasing per-chip royalties as Arm gains share in structural growth markets. New offerings like Armv9 and subsystems should boost royalties. While licensing revenue growth is flat to up, royalties are poised to significantly outpace the market based on higher volumes and increased rates per chip.
Arm's deep customer partnerships provide visibility into future demand drivers.
The analyst sees revenue growing at a 15-20% CAGR long-term, with management targeting operating margins expanding to 60%, driven by royalty revenue growth and operating leverage. He estimates revenue and EPS for FY24 at $2.97 billion and $1.06 and FY25 at $3.71 billion and $1.40.
Price Action: ARM shares traded lower by 0.33% at $53.90 on the last check Monday.