Arm Holdings Stock Surges Following Positive Analyst Coverage

Arm's stock rises after Raymond James initiates coverage with bullish views (NASDAQ:ARM)

Arm Holdings' (NASDAQ:ARM) stock rose about 2% premarket on Friday after Raymond James started coverage of the British company with an Outperform rating and a $160 price target. The analysts said that Arm, as the dominant supplier of energy-efficient processor/subsystems IP, the company is well-positioned to benefit from rapid growth of generative Al in the cloud and at the edge. The analysts expect content increases in mobile along with higher penetration of ARM architecture in auto, data center and PC markets to drive sustainable double-digit growth for the next several years. Edge Al is a key catalyst for ARMv9, which offers about 2x royalties over prior generation and has a long runway. Compute Subsystems is another significant content driver that will start to contribute later this year. While Arm server adoption has been gradual, generative Al is making it necessary that low-power CPUs and the upcoming Nvidia GB2D0 should drive an acceleration, the analysts noted. Raymond James also sees a good possibility that Arm will eventually offer data center Al accelerator IP, which could significantly expand its serviceable addressable market, or SAM. Competition from RISC-V -- an open-source instruction set architecture -- is increasing but is unlikely to threaten Arm's dominance, according to the analysts. The analysts believe premium valuation is justified given the generative Al megatrend, unparalleled ecosystem, and arguably the industry's best pricing power. Earlier in the week, Morgan Stanley made Arm (ARM) its new large-cap Top Pick, citing mobile recovery, new edge AI opportunities and the resulting royalties' expansion.

Another Bullish Analyst's Report Keeps Arm Stock Rising

Both Raymond James and Morgan Stanley pointed to Arm's strength in generative artificial intelligence. Arm Holdings' (ARM) U.S.-listed shares rose Friday, extending a run of gains after an analyst started coverage of the chip-design company's stock with an upbeat rating. Arm's American Depositary Receipts (ADRs) were recently up about 6%. Raymond James initiated coverage on the stock with an "overweight" rating, citing the company's strong position in the generative artificial intelligence (AI) market. Analyst Srini Pajjuri gave Arm a price target of $160, about 15% above Thursday's close. "ARM is well-positioned to benefit from rapid growth of GenAI in the cloud and at the edge," Pajjuri wrote. Pajjuri said that edge AI -- essentially the use of AI on local devices -- was "a key catalyst" for Arm's Armv9 architecture, which is used in the new Apple (AAPL) iPhone 16's processor. Raymond James sees Arm's technology finding its way into more mobile devices, as well as auto, data center, and PC markets. He argued that those factors should "drive sustainable double-digit growth for the next several years." Morgan Stanley on Wednesday made Arm "Our New Top Pick." The analysts there also cited edge AI as part of their reasoning. Arm's ADRs have about doubled in 2024.

Why Arm Holdings Rallied Again Today | The Motley Fool

Arm had already seen a wave of analyst upgrades this week, but got even more positive news today, this time via a bullish initiation from analysts at Raymond James. Raymond James started coverage on Arm today, initiating the stock with a buy rating and a $160 price target. The analysts are bullish on Arm due to what they see as widespread future adoption of the company's V9 architecture. This new architecture is optimized for neural processing in artificial intelligence (AI) applications, and carries a price tag that's twice the rate of the prior generation's architecture. So as AI permeates more end markets, Arm should benefit handsomely from V9 adoption. Apple's iPhone and Mac chips use the Arm architecture, and analysts believe the new iPhone 16 contains V9 to power the iPhone's new Apple Intelligence services. Furthermore, Nvidia uses Arm for its Grace CPU, which accompanies Nvidia's Hopper and Blackwell GPUs in its "superchip" reference designs for AI data center servers. Raymond James sees Arm making bigger inroads into the server market, especially low-power edge AI servers, where Arm has traditionally had lower penetration. As the cherry on top, the analysts also predict Arm will eventually release a license for AI accelerators themselves. Currently, Arm is only used in CPUs and not accelerators, so that could lead to material upside. Despite all this potential growth, Raymond James' target price is only $160, a mere 15% above the stock price to start the day and 8.2% above the price as of this writing. That's likely a function of Arm already being an expensive stock, at 89 times earnings estimates for 2025 heading into today. So while Arm's outlook is bullish, there isn't much margin of safety in buying shares here.