Arm Holdings Poised for Growth as Edge AI Emerges as New Frontier

Arm is poised for upside as edge AI emerges, Morgan Stanley says

Shares of Arm Holdings (NASDAQ:ARM) have jumped more than 130% year-to-date as the artificial intelligence spending boom rages on. But with AI just starting to come to the edge, the British chip design firm is poised to reap major rewards, Morgan Stanley said. The Wall Street firm said Arm, which is partially owned by Softbank (OTCPK:SFTBY) has multiple ways to benefit as AI moves to the edge, or consumer devices: custom silicon, new designs and extensions. As such, it sees its total serviceable addressable market topping $14B by 2027, including $4.44B for smartphones (with expected royalties of $1.87B), automotive of $1.45B (with expected royalties of $0.33B) and the AI PC market of $7.92B (with expected royalties of $0.38B). "We would note that we are more cautious on the AI PC opportunity given historical precedent of competition in the PC space," analysts at the firm wrote in an investor note. "This is reflected in our expectations for less royalty capture relative to the size of the potential AI PC [serviceable addressable market]." Morgan Stanley upgraded its rating on Arm to Overweight from Equal-Weight. It also raised its price target to $190 from $107, based on expectations it could earn $3.88 per share in 2027, up from $1.57 per share this year. Arm is widely known in the technology space, given its list of customers is a "who's who" of the sector: it counts Apple (AAPL), Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) and a host of others as customers. Arm generates the vast majority of its revenue from licensing its intellectual property to the aforementioned companies and a host of others. That's why investors were concerned in May when it offered up guidance for the remainder of the year that was below expectations. However, Morgan Stanley believes the company "low-balled" the guidance for licensing, which should set it up to report better-than-expected results. Additionally, a number of media reports have said that Apple (AAPL) is likely to increase its iPhone shipments this year, which should also positively impact Arm, Morgan Stanley said. Lastly, the deployments of Arm's Compute Subsystems (coming in 2025 and beyond) are being overlooked, Morgan Stanley said. "All told we think these developing edge AI opportunities have explained some of the share price movement year to date, but our assessment of the true [serviceable addressable market] of each, along with the likelihood of Arm capturing more functionality on the CPU, we think there is more upside in the Arm story," the analysts wrote.

Morgan Stanley says there's an AI opportunity investors are missing -- and this chip stock is top way to play

Semiconductor manufacturer Arm Holdings may be a key player in the rise of "edge AI," according to Morgan Stanley. Edge AI refers to deploying AI models and machine learning on local devices, such as sensors or Internet of Things devices, rather than on the cloud. According to analyst Lee Simpson, "this will require real time processing, support for small language models (SLMs) and secure compute across a range of end markets. Being able to scale compute efficiently, with a large number of licensee partners and a huge developer community means Arm [is] well-positioned to capture value." With this in mind, Simpson upgraded Arm Holdings to overweight from equal weight. He also hiked his price target to $190 from $107, implying 20% upside potential from Thursday's close. The growing edge AI landscape gives the company opportunities throughout smartphones, auto vehicles and even in AI PCs, said Simpson. Arm is already in a "strong position" for developing edge AI-focused custom chips for the mobile and auto sectors, per the analyst. In particular, the rise of chips in auto vehicles is a significant opportunity, Simpson believes, forecasting auto royalties to soar to $1.1 billion by 2030. He also forecasts Arm capturing 42% of the serviceable market for smartphone royalties in the 2027 fiscal year. "We think of Arm products as fundamental to the successful emergence of edge AI," Simpson said. Arm shares have more than doubled this year. On Friday, they ticked up another 2%. ARM YTD mountain ARM year to date

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

Despite sector selloff, Arm's AI readiness plan and strong growth prospects boosted investor confidence. ARM Holdings Plc ARM shares are trading higher after Morgan Stanley analyst Lee Simpson upgraded the stock from Equal-Weight to Overweight and raised its price target from $107 to $190. The upgrade comes as the broader semiconductor sector has seen a selloff this week following Donald Trump's verbal attack against contract chipmaker Taiwan Semiconductor Manufacturing Co TSM and the U.S.'s plans to intensify advanced semiconductor sanctions against China. AI chip stocks led by Nvidia Corp NVDA, Advanced Micro Devices, Inc AMD lost 9% and 18% this week. At the Computex forum in Taipei, Arm CEO Rene Haas said he expects 100 billion Arm devices worldwide to be AI-ready by the end of 2025. Arm Holdings plans to showcase its AI chip in 2025 and launch it commercially by fall 2025. Parent company Softbank Group Corp SFTBF SFTBY aims to invest significantly in data centers using its AI chips and renewable energy. AMD CFO Jean Hu recently suggested a potential entry into next-generation AI PCs. Analysts remain optimistic about Arm Holdings, citing strong licensing interest and royalty potential as essential growth factors. They also highlight Arm's opportunities in the AI and data center sectors. Arm Holdings stock rose by 158% over the past 12 months as AI integrated into smartphones. The ARM (Acorn RISC Machine) architecture powers 99% of the world's smartphone CPU cores. Apple, Inc AAPL is one of Arm's major customers. Arm's clients choose the company over Intel Corp's INTC x86 technology primarily for its efficiency and widespread adoption. Arm's architecture enables chips to consume less power compared to x86, making it ideal for mobile devices and other power-sensitive applications, CNBC reported in 2023. Key clients like Apple, Amazon.Com Inc AMZN, Alphabet Inc GOOG GOOGL Google, Microsoft Corp MSFT, Nvidia Corp NVDA, and Qualcomm Inc QCOM leverage Arm's technology to build custom silicon tailored to their specific needs. ARM Holdings has a consensus price target of $112.17 based on the ratings of 25 analysts. ARM Price Action: Arm shares traded higher by 3.47% at $163.83 at the last check on Friday. Photo via Wikimedia Commons Market News and Data brought to you by Benzinga APIs