Analysts unveil Arm Holdings stock price targets after earnings

In the race car comedy “Talladega Nights: The Ballad of Ricky Bobby,” the eponymous hero boldly declares that “if you ain’t first, you’re last.”

The film is nearly 20 years old, but that line could apply to artificial intelligence, which is tearing through just about any level of today’s society, like Ricky Bobby on a straightaway. 

A Nasdaq report published last month said, “the explosion of (AI) in both production processes and final products has created tremendous opportunities for chipset manufacturers.”

“We believe that the AI space is yet to unfold in the United States and international markets,” the report said. “Once that happens, it will generate huge business opportunities for technology companies for producing high-end products.”

Arm Holdings is arguably one of the biggest players in this brave new technology.

The Cambridge, England-based semiconductor and software design company went public on Sept. 15. Its products are used in mobile phones and just about anything tech-related.

The company, which is 90% owned by Japanese investment company SoftBank Group, has a customer list that includes the likes of Amazon  (AMZN) , Nvidia  (NVDA) , AMD  (AMD) , and Apple  (AAPL) .

AI played a big role in Arm’s third-quarter better-than-expected earnings report, which sent shares into overdrive on Feb. 8.

AI plays a big role in Arm’s earnings.

Jacques Julien/Getty Images

Arm seeing demand for AI tech ‘everywhere’

“We are seeing the demand for Arm technology to enable AI everywhere, from the cloud to edge devices in your hand,” the company said in its letter to shareholders. Generative AI and large language models (“LLM”) need very high-performance processors.” 

Arm reported adjusted earnings of 29 cents, topping Wall Street’s call for 25 cents. Revenue totaled $824 million, ahead of analysts’ forecasts for $761 million.

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In the fourth quarter, Arm expects earnings to range between 28 and 32 cents a share on sales of $850 million to $900 million. Analysts are calling for earnings of 21 cents per share on sales of $780 million.

CEO Rene Haas told analysts during the company’s conference call that “more and more compute technology is being pushed into mobile phones so that they are AI capable and AI ready because this field is moving very, very fast.”

“A year from now, who knows what type of AI applications it might be able to run on a smartphone?” he said, according to a transcript of the call. “So, what we’re seeing is a shift to more and more high-performance-capable technology to capture a wave to ensure that they can run these AI workloads.”

“Nobody wants to be caught behind with not enough performance when the new application comes out,” Haas added.

Or, as Ricky Bobby might say, “If you ain’t first, you’re last.”

Analyst reacted enthusiastically to Arm’s earnings win, and several of them raised their stock price targets.

“The market is starting to have a better handle on their business model and how that aligns with some of the bigger chip design trends over the next few years,” analyst Ben Bajarin from Creative Strategies told Reuters

“I know there is some skepticism over the value, but I think people are starting to understand how deeply intertwined Arm IP is to much of the growth sector of the industry,” he said.

JPMorgan raised the firm’s price target on Arm to $100 from $70 and kept an overweight rating on the shares.

Analysts praise ‘solid’ quarter

The company delivered strong fiscal quarterly results with better revenue, margins, and earnings. 

JPMorgan believes Arm is well-positioned to drive an 18% annual revenue growth for the next three years.

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The firm said the growth would be driven by higher intellectual property content, market share gains against proprietary-legacy compute architectures, and growing penetration into the highest growth segments of the market.

Bank of America raised the firm’s price target on Arm to $110 from $80 while keeping a buy rating on the shares following the “solid” quarter.

The firm noted that “importantly,” Arm’s royalty revenues grew 12% year-over-year, marking the first year-over-year growth in four quarters. 

BofA said bears in the market would point to such factors as lumpiness in licensing deals, China sales, and stock volatility while flagging the upcoming IPO lockup expiration post-listing.

The lockup period, which prohibits company insiders from selling the stock, is due to expire on March 12.

However, the firm thinks “they miss the big picture around accelerating 30%+ annual royalty sales at highly accretive margins.”

Citi got in on the act by raising its price target from $86 to 115 while keeping a buy rating on the shares. 

The firm said that Arm delivered a very impressive earnings beat-and-raise quarter even by already high semiconductor industry standards.

Citi said that strength in both royalties and licensing drove the upside, and the firm expects Arms sales trends to remain robust into fiscal 2025.

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