Arm Holdings Benefits From 'Accelerated AI, Royalty Revenue': 6 Analysts Examine Q3 Print

Shares of Arm Holdings PLC ARM climbed in early trading on Thursday after rising in the premarket session.

Arm Holdings announced its fiscal third-quarter results amid an exciting earnings season. Here are some key analyst takeaways from the release.

• Mizuho Securities analyst Vijay Rakesh maintained a Buy rating, while raising the price target from $85 to $100.
• JPMorgan analyst Harlan Sur reiterated an Overweight rating, while lifting the price target from $70 to $100.
• BofA Securities analyst Vivek Arya reiterated a Buy rating, while raising the price target from $80 to $110.
• KeyBanc Capital Markets analyst John Vinh reaffirmed an Overweight rating, while raising the price target from $75 to $120.
• Goldman Sachs analyst Toshiya Hari maintained a Buy rating and price target of $95.
• Needham analyst Charles Shi reiterated a Hold Outperform rating on the stock.

Check out other analyst stock ratings.
Mizuho Securities: Arm reported strong quarterly results and guided to a stronger March quarter, “with next generation-v9 platform adoption and strong cloud growth,” Rakesh said in a note.

The company’s Royalty revenues came in at $470 million, beating the consensus estimate of $449 million, the analyst stated. “Strong top-line acceleration with new v9 we estimate driving C2024E smartphone/PC client to 38% y/y, and cloud compute (GH200/Cobalt) revenues up 66% y/y," he added.

JPMorgan: Arm delivered another quarter “driven by the acceleration of chip design activity and focus on accelerated compute/AI,” Sur wrote in a note.

“The rise/adoption of accelerated compute/AI workloads in the datacenter, edge, and endpoints is driving the requirement for significantly more compute capability and power efficiency per device and motivating ARM’s customer to adopt their highest performance compute IP and host of other IP building blocks which is driving higher levels of licensing activity,” the analyst stated. He added that the transition from ARMv8 to ARMv9 in customer chip designs is driving higher royalty rates and all these factors are “creating a strong growth profile for ARM’s licensing and royalty segments.”

BofA Securities: Arm reported “solid” results for the fiscal third quarter, with sales of $824 million, up 14% year-over-year and 8% ahead of Street expectations, Arya said. He added that the fiscal fourth quarter sales guidance came in 12% higher.

“Importantly, ARM’s royalty revenues grew 12% YoY in DecQ, first YoY growth in 4 quarters, accelerating to 30% YoY growth in guided MarQ,” the analyst wrote.

KeyBanc: Arm posted strong quarterly results and announced solid guidance for the fiscal fourth quarter, “which were both well above expectations,” Vinh wrote. “Upside was mainly driven by an increase in Armv9, which increased 50% q/q to represent 15% of royalties in F3Q."

“Additionally, ARM disclosed the royalty rates of Armv9 are ~2x that of Armv8 with the majority of flagship smartphones having adopted this latest ARM core,” the analyst further stated.

Goldman Sachs: “Arm delivered a strong beat and raise driven by better licensing revenue and expanding royalty rates (i.e. supported by the ongoing transition from Armv8 to Armv9 with the latter carrying roughly 2x the royalty rate),” Hari said.

He added that Arm is likely to “not only grow dollar content in smartphones, primarily through higher royalty rates, but to also extend its reach across applications to which it is under-indexed today including Data Center, Automotive, and IoT.”

Needham: Management attributed the upside mainly to a surge in AI, Shi said. He added, however, that the upside in December quarter earnings seems to be driven by “a surge in royalty revenue from China, as well as a related-party transaction with a company that Arm invested in (we think it is Ampere).”

“The company's continued strength into March is admirable, but raises questions on the source of strength, as major mobile customers should be entering a seasonally low quarter,” the analyst further wrote.

ARM Price Action: Shares of Arm Holdings had risen by 46% to $112.44 at the time of publication on Thursday.

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