ARM Holdings Emerges as Morgan Stanley's Top Pick Amid AI Boom

What's next for Arm's stock price after Apple's partnership?

Arm doesn't produce chips, but its design is probably in your smartphone. Apple's latest iPhone 16 series, featuring A18 chips that power its AI feature, Apple Intelligence, is using Arm's newest V9 chip design, the Financial Times reported. The UK semiconductor company has a multiyear licensing agreement with Apple. Last year's iPhone 15 Pro and Pro Max devices, which can also contain Apple Intelligence, were built on Arm's previous generation V8 architecture. Related: Analyst revisits Apple stock price target after iPhone 16 launch Companies like Apple, Samsung, and Nvidia use Arm Holdings' central-processing-unit chip architectures. Arm then receives licensing payments and royalties based on the number of products sold. License revenue comes from granting the right to use its intellectual property, while royalty revenue is the continuous fee payment based on the usage or sales of that IP. Arm's Chief Executive Rene Haas has said that the V9 chip design earns twice the royalties of the V8 generation, with estimated rates around 4%, compared with the average 1.7% royalty rates for prior generations. This increase enables Arm to claim more revenue from each V9 chip sold. "As a CFO, it's one of the better business models I've seen. I joke sometimes that those older products are like the Beatles catalog: They just keep delivering royalties. Some of those products are three decades old," Arm Chief Financial Officer Jason Child said in a CNBC interview. Arm stock tumbled this summer Arm's (ARM) fiscal 2025 first-quarter results, reported on July 31, exceeded analysts' forecasts, but the shares slumped due to tepid guidance. The company earned 40 cents a share adjusted, beating Wall Street's expectation of 34 cents. Its revenue of $939 million was up 39%, higher than analysts' consensus forecast of $902.7 million. Related: Analysts reboot Arm Holdings stock price target following earnings However, Arm maintained its full-year guidance of adjusted earnings per share between $1.45 and $1.65, with revenue expected to range from $3.8 billion to $4.1 billion. Analysts had projected adjusted earnings per share of $1.58 and revenue of $4.02 billion. Despite a 40% slump in July and August, Arm stock has about doubled this year. The surge in artificial intelligence activity will continue to drive chip sales in the coming years. "As the energy needs of AI continue to escalate, so does the demand for the high-performance, power-efficient Arm compute platform," Haas said in a shareholder letter. Arm a favored play on emerging Edge AI, Morgan Stanley says A month ago, Bernstein upgraded Arm to market perform from underperform with a price target of $100, up from $92, following the 40% drop. Bernstein said on Aug. 7 that Arm's valuation needed to be revisited, given the share price's 40% drop in four weeks and more confidence in mobile royalty growth. Bernstein says V9 products will contribute significantly to the company's royalties, reaching 40% by the end of fiscal 2025. The analyst said Arm was gaining market share in the cloud-computing sector. Given these developments, Bernstein views the stock's potential risks and rewards as more evenly balanced at its current price. Morgan Stanley affirmed a positive outlook toward Arm stock following the iPhone 16 release on Aug. 12 because of the utilization of Arm's chip design. More AI Stocks: "Arm remains a favored play on the emerging Edge AI opportunity," Morgan Stanley's analyst Lee Simpson said, expecting mobile to drive initial upside, followed by infrastructure and autos. Morgan Stanley affirms a $175 price target with an overweight rating on Arm stock. On Sept. 5, according to TheFly, the investment firm named it a Joint Top Pick along with ASM International (ASMIY) . For ASM International the analyst cut the price target to 725 euros ($801) from 800 euros. And Morgan Stanley affirmed an overweight rating on ASML Holding (ASML) while cutting its price target on the stock to 925 euros from 1,000 euros and removing it as a Top Pick, TheFly reported. Related: Veteran fund manager sees world of pain coming for stocks

Arm Holdings Stock is Way Up After Being Called a 'Top Pick' Amid AI Demand

Morgan Stanley has an "overweight" rating on Arm's U.S.-traded shares, with a $175 price target. Arm Holdings (ARM) shares jumped Wednesday after Morgan Stanley analysts named the chip designer "Our New Top Pick" because of its reach into artificial intelligence (AI) products. The analysts wrote Wednesday that they see Arm "as an important part to the shift to edge AI," which is the use of AI data closer to its source, rather than centrally located in a cloud computing facility or data center. The Morgan Stanley research report pointed to this week's launch of the Apple (AAPL) iPhone 16 and Arm's architecture used in the phone's A18 processor. The analysts called the company their "favored play" on the emerging edge AI technology, adding that they expect mobile devices will fuel the initial upside for this deployment of AI, followed by infrastructure and autos. They also noted that Arm's key growth drivers include increased use of the company's v9 central processing unit (CPU) designs, more custom silicon demand, and greater use of CPU extensions. Morgan Stanley rates the stock as "overweight," with a price target of $175, which is more than 25% above its current level. Arm Holdings American depositary receipts (ADRs), which have nearly doubled in value so far this year. Wednesday, were up 8.8% at $138.40 with about half an hour left in Wednesday's session

Arm becomes new Top Pick at Morgan Stanley on emerging Edge AI opportunity

Morgan Stanley made Arm Holdings (NASDAQ:ARM) its new large-cap Top Pick, citing mobile recovery, new edge AI opportunities and the resulting royalties' expansion. The firm maintained an Overweight rating and a $175 price target on the stock. Analysts led by Lee Simpson said that after the launch of Apple's (AAPL) iPhone 16 on Monday and the indicated use of Arm v9 architecture in the A18 processor, the British company remains their favored play on the emerging Edge AI opportunity. The analysts expect mobile to drive initial upside, followed by infrastructure and autos. The analysts think Arm is an important part of the shift to edge AI. Arm royalties expansion is driven by mobile (35% compound annual growth rate, or CAGR, FY24-27), with medium-term momentum seen in autos, alongside solid growth in Infrastructure. The analysts expect the growing use of v9 cores, plus a shift to more custom silicon work, to be a feature of mobile growth. Simpson and his team noted that the iPhone 16 release suggested the use of an Arm-based A-series processor (A18) in the device. They think this is likely an Armv9-based core, probably using CPU extensions that give greater resource balance in the device across CPU, NPU and GPU. Apple is expected to stagger the release of its AI features, and with expectations for 225 million to 240 million iPhone units in FY'25 but the analysts believe that this could climb to a range of 230 million to 260 million and above in FY26. Arm's fiscal year 2025 ends in March 2025. In addition, the analysts stated that Arm is the global leader in silicon IP and is often overlooked as an AI beneficiary. They think of Arm as more than a mobile CPU story, and instead look to the growing use of custom silicon on Arm as a strong driver of royalties' expansion (including a shift to higher royalty rates) in the next two-to-three years at least. Drivers of custom silicon royalties already come from cloud AI (initial volumes), but this will shift in large part to mobile soon (starting in the March quarter or fiscal fourth quarter 2025), according to the analysts.

Arm Holdings is Morgan Stanley's new top pick: should you buy? By Invezz

Invezz.com - Analysts at Morgan Stanley (NYSE:MS) just elevated Arm Holdings (NASDAQ: NASDAQ:ARM) to their top large-cap pick, highlighting a strong belief in Arm's growth prospects, particularly in mobile recovery and emerging edge AI opportunities. Morgan Stanley maintained an Overweight rating with a $175 price target, reflecting their confidence in Arm's ability to capitalize on the expanding edge AI market, driven by its v9 architecture's integration into Apple's iPhone 16 and other high-performance devices. Analysts forecast a 35% compound annual growth rate (CAGR) in Arm's mobile segment from FY24 to FY27, with further momentum expected from autos and infrastructure. The recent launch of Apple's iPhone 16, featuring Arm's v9 architecture in the A18 chip, is a significant milestone. The v9 cores are expected to drive substantial growth, particularly in the mobile segment. With an anticipated 230-260 million iPhone units to be shipped in FY26, Arm's royalty revenue is poised for a robust expansion. Morgan Stanley emphasized Arm's pivotal role in the shift to edge AI, where the company's silicon IP is increasingly being utilized in custom silicon work across various sectors, leading to higher royalty rates over the next two to three years. Arm's Q1 earnings, though solid, were met with mixed reactions. The company reported a 39% year-over-year revenue increase to $939 million, beating expectations by $32.5 million. However, the guidance for Q2 FYE25 came in slightly below consensus, with revenue expected to be between $780 million and $830 million, and earnings per share (EPS) in the range of $0.23 to $0.27. Despite this, Arm reaffirmed its full-year outlook, projecting revenue between $3.8 billion and $4.1 billion and adjusted EPS of $1.45 to $1.65. This guidance, while strong, reflects a deceleration from the previous quarter's impressive growth, raising concerns about the sustainability of the momentum. On the fundamental front, Arm continues to demonstrate its dominance in the semiconductor industry. The company's revenue is primarily driven by its licensing and royalty model, with a notable increase in license revenue by 72% year-over-year in Q1, reaching $472 million. Royalty revenue, which grew 17% year-over-year, remains a critical component of Arm's business, particularly with the rising adoption of the v9 architecture. The v9 architecture commands higher royalties, contributing to a significant portion of Arm's revenue growth. Arm's strategic partnerships with tech giants like Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN) further bolster its revenue streams, as these companies increasingly rely on Arm's designs for their advanced AI and data center needs. However, Arm is also facing several headwinds. The competitive landscape in the semiconductor industry is intensifying, with rivals like Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) gaining ground in certain segments. Additionally, geopolitical risks, particularly related to China, pose potential challenges for Arm's revenue growth. The company's exposure to export controls and the uncertainty surrounding US and UK regulatory approvals could impact its ability to do business in China, which accounted for 14% of its revenue in FY24. In terms of valuation, Arm is currently trading at a premium, with a forward price-to-sales (P/S) ratio of 33.56, significantly higher than the sector median. This high valuation reflects the market's expectations for Arm's continued growth in the AI and semiconductor markets. However, some analysts argue that Arm's growth may not fully justify its current valuation, especially when compared to other high-growth semiconductor companies like Nvidia and AMD. While Arm's revenue is expected to grow at a robust rate, the stock's high multiple leaves little room for error, making it vulnerable to any potential downturns in performance or market sentiment. Now, let's see what the charts have to say about the stock's price trajectory. With the fundamentals and valuation in mind, a closer examination of Arm's technical indicators will provide further insight into whether the stock's current price levels are justified or if there are potential entry points for investors looking to capitalize on Arm's future growth. Although Arm's stock has fallen significantly from its peak of $188.75 made in July this year, it has bounced back from lows of under $100 made earlier last month and is displaying bullish momentum on the short-term charts. Source: TradingView Taking that into account, investors who are bullish on the stock can initiate a long position at current levels with a stop-loss below $106.5. If the bullish momentum intensifies, we can soon see the stock trading above $172. Traders who are bearish on the stock must wait for it to fall below the $106.5 level again and start exhibiting weakness before initiating a fresh short position.

What's Going On With Arm Holdings Stock Thursday? - ARM Holdings (NASDAQ:ARM)

Arm Holdings PLC - ADR ARM shares are down about 0.6% to $139.42 Thursday afternoon while there is a lack of company-specific news for the session. Despite this slight dip, shares have jumped 14% since Monday's open. What's Going On: ARM stock gained on Monday as anticipation grows around the company's role in Apple Inc's AAPL upcoming iPhone 16. Reports indicated that Apple will feature Arm's V9 architecture in the new A18 chip. The Financial Times reported that the new iPhone will leverage Arm's advanced V9 architecture, which has been previously integrated into Apple's M4 MacBook chips. This architecture, introduced by Arm in 2021, is expected to drive a substantial increase in royalties for the company. Read Also: Warren Buffett Sells More Bank Of America Stock: Should You Follow His Lead Or Invest Further? According to Arm's CEO, Rene Haas, the shift from the V8 to the V9 architecture could potentially double the company's earnings from chip royalties. This development is particularly significant as Apple continues to pivot towards enhancing its artificial intelligence capabilities. The company's recent announcement of "Apple Intelligence," which includes complimentary access to OpenAI's ChatGPT, underscores its investment towards AI advancements. What Else: In July, Arm reported quarterly sales of $939 million, beating the consensus estimate of $902.7 million by 4.02%. This growth was primarily driven by record license revenue and a significant increase in royalty income. The company also announced earnings of 40 cents per share for the first quarter, which exceeded the analyst consensus estimate of 34 cents by 17.65%. Read Also: European Central Bank Cuts Key Interest Rates As Inflation Cools Is ARM A Good Stock To Buy? An investor can make a few decisions when deciding whether a stock is a good buy. In addition to valuation metrics and price action which you can find on Benzinga's quote pages -- like Arm Holdings's page for example -- there are factors like whether or not a company pays a dividend or buys a large portion of its stock each quarter. These are known as capital allocation programs. Arm Holdings does not pay a dividend, but obviously has a few ways it can return value to shareholders. Feel free to search Benzinga's dividend calendar for the next company that is due to pay a dividend and determine what kind of yield you can earn for holding a share of the company. For example, if you're looking to earn an annualized return of 13.76%, you'll need to buy a share of Aberdeen Total Dynamic by the Sept. 23, 2024. Once done, you can expect to receive a nominal payout of $0.1 on Sept. 30, 2024. Buyback programs are obviously different and highly variable. A company can approve a buyback program and purchase shares as it sees fit over the course of time in which the buyback was authorized. Looking through the latest news on Arm Holdings will often yield whether or not the company has approved a buyback program recently. Buyback programs usually serve as a support for share prices, serving as a backstop for demand. According to data from Benzinga Pro, Arm Holdings has a 52-week high of $188.75 and a 52-week low of $46.50. Photo: Pixabay Market News and Data brought to you by Benzinga APIs

This AI chip stock is new Top Pick at Morgan Stanley By Investing.com

Following the launch of the iPhone 16 and the inclusion of Arm's v9 architecture in the A18 processor, Morgan Stanley analysts see Arm as a key player, with mobile driving the initial upside, followed by infrastructure and automotive sectors. "Arm remains our favoured play on the emerging Edge AI opportunity," the investment bank wrote. "We expect the growing use of v9 cores, as well as a shift to more custom silicon work, to be a feature of mobile growth." Mobile is expected to be the main catalyst, with a projected 35% compound annual growth rate (CAGR) from FY24 to FY27. Additionally, Morgan Stanley says the deployment of v9.2 scalable matrix extensions highlights Arm's increasing importance in mobile AI. The bank's analysts believe Arm's expansion in royalties, driven by mobile adoption, will have a significant impact on its bottom line, projecting a 44% CAGR in earnings from FY24 to FY27. They also point to the company's recovery in licensing deals, which are expected to improve in Q4 as a major client renews its agreement with Arm. The release of Apple (NASDAQ:AAPL)'s iPhone 16, which uses an Arm-based A18 processor, is seen as a major opportunity for Arm, especially with Apple's AI feature rollout expected to boost iPhone shipments to 230-260 million units in FY26. This aligns with Arm's mobile growth expectations as the company capitalizes on the new iPhone product cycle. While Morgan Stanley adjusted its FY27 EPS estimate to $3.63, slightly down from previous estimates, the analysts maintain a price target of $175, representing a premium to its peers due to Arm's CPU dominance and critical role in the development of Edge AI.