Arm's Rising Royalties and v9 Adoption Strengthen Market Position, Analysts Say

Wall Street analysts rerated Arm Holdings ARM after reporting an upbeat quarterly print Wednesday amid an exciting earnings season. The stock is trading lower on Thursday.

Arm reported third-quarter revenue of $983 million, up by 19%, topping analyst estimates of $946.73 million. The chip designer reported adjusted EPS of 39 cents, beating analyst estimates of 34 cents.

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Arm expects fourth-quarter revenue of $1.175 billion-$1.275 billion versus $1.22 billion analyst consensus. The company anticipates fourth-quarter adjusted EPS of 48 cents-56 cents versus 52 cents analyst consensus.

Several analysts rated the stock post earnings:

Raymond James analyst Srini Pajjuri maintained ARM Holdings with an Outperform and raised the price target from $160 to $175.
Rosenblatt analyst Hans Mosesmann reiterated ARM Holdings with a Buy and raised the price target from $180 to $225.
Needham analyst Charles Shi maintained ARM Holdings at Hold.
JP Morgan analyst Harlan Sur reiterated ARM Holdings with an Overweight and raised the price target from $160 to $175.
Goldman Sachs analyst Toshiya Hari maintained ARM Holdings with a Buy and raised the price target from $159 to $174.
BofA Securities analyst Vivek Arya reiterated ARM Holdings with a Buy and a price target of $180.

Raymond James: Arm Holdings’ third-quarter results were better than consensus, while its fourth-quarter outlook was mainly in line. Royalty revenue grew 23%, driven by ARMv9, early CSS contribution, data center CPU growth, and IoT recovery.

Pajjuri noted that the v9 penetration story has a long way to go and is also encouraged by the early progress of compute subsystems (CSS), which essentially doubles the royalty rate over v9. Licensing grew 14% and fared slightly better than expected as the company closed several large deals.

Pajjuri expects strong double-digit growth to continue, driven by v9 or CSS transitions and growing Arm adoption in the data center. Pajjuri also noted the emergence of AI agents and efficient AI models (such as DeepSeek) as significant positives for Arm Holdings, given its strong presence at the edge.

Rosenblatt: Arm Holdings once again delivered solid beat and raise for the December quarter driven by v8, v9, and newer CSS royalties in Smartphone and DC, but also recovering Networking and IoT.

The licensing pipeline has increasing AI momentum in size, timing, and value, including CSS engagements that increase yearly value as Arm Holdings updates its architectural roadmaps.

The read-through is that royalty rates can go double-digits in the coming years (excluding IoT). Analysts seemed perturbed (as usual) on the v9 % of revenues, holding steady sequentially at 25%. V8, the older generation, is just much more potent than expected. Mosesmann noted it will move to 60%-70%.

Needham: Arm Holdings delivered a beat-and-raise quarter and raised its fiscal 2025 outlook. In the reported quarter, both royalty and licensing revenues exceeded the estimates.

Arm Holdings expects a slight decline in royalty revenues for the March quarter due to smartphone seasonality and a potential pullback in IoT revenues, offset by record licensing revenue supported by a couple of significant renewals.

The company is overdelivering the fiscal 2025 targets set during the IPO. Beyond fiscal 2025, Arm Holdings expects to maintain 20% growth in fiscal 2026 and 2027 and noted the company will transition from licensing-driven growth in fiscal 2024-2025 to royalty-driven growth in fiscal 2026 and beyond.

JP Morgan: Arm delivered solid third-quarter results – better revenues, margins, and EPS – driven by better-than-expected licensing and royalties. Sur continues to see ARMv9 reaching 60%-70% of the royalty revenue mix over the next 2-3 years.

China mix increased to 25% of sales (from 23% in the September quarter).

Overall, the solid results and outlook are tracking in line with Sur’s investment thesis, where he said Arm Holdings is well-positioned to drive a 20%+ revenue CAGR (40%+ EPS CAGR) for the next several years on higher IP content (driving higher royalty rates), market share gains against proprietary or legacy compute architectures, and Arm Holdings’ growing market penetration into the highest growth segments of the market like AI, auto, and datacenter computing.

Goldman Sachs: Arm Holdings reported solid third-quarter results as revenue upside across the Licensing and Royalty businesses translated into a 15% adjusted EPS beat.

While the penetration of the v9 architecture is proceeding slower than anticipated, on the positive side, Hari has been encouraged by the strong traction in its Compute Subsystems (CSS) business, volume growth in Cloud Infrastructure, and better-than-feared near-term volume trends in IoT.

Looking ahead into fiscal 2026, Hari noted the combination of robust Licensing revenue growth, a cyclical recovery in volumes, and a sustained increase in royalty rates, driving strong double-digit earnings growth at the company level.

He views the company as a long-term share gainer in the growing Cloud and Edge computing markets.

BofA Securities: Licensing upside delivered a third-quarter beat, while the fourth quarter is generally in-line. Near-term royalty remains pressured on ongoing smartphone, networking, and auto-cyclical headwinds.

Still, Arya highlights surging licensing revenues today, which should result in strong Royalty fall-through 2-3 years later. ARMv9’s adoption of 25% of royalty sales remained flat sequentially for the third consecutive quarter, given the higher mix of v8 phones.

The company insists its long-term attach target of 60%-70% remains on track. Importantly, Arm Holdings remains exposed to an expanding range of opportunities into fiscal 2026 or calendar 2025, spanning across v9, CSS, and PC or server share gains, all of which stem from the growing adoption of AI across the industry.

Price Actions: ARM stock is down 3.26% at $167.64 at last check Thursday.

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