Arm Holdings Poised To Challenge Qualcomm, Intel, AMD In AI, Analysts Predict Growth In Chip Design

Arm Holdings Plc – ADR ARM stock is trading lower Thursday as the company’s fiscal 2025 guidance disappointed the Street and raised concerns over a potential slowdown in artificial intelligence spending. 

Fiscal year 2025 revenue is expected of $3.8 billion-$4.1 billion, versus the $3.98 billion analyst consensus estimate, and adjusted EPS of $1.45-$1.65, versus the $1.54 analyst consensus estimate. Revenue growth rate of a minimum of 20% in fiscal 2026 and 2027 is also expected.

Also Read: Thanks To Apple, This Analyst Is Optimistic On ARM, Microchip Technology And More Ahead Of Earnings

Arm projected first-quarter revenue of $875 million-$925 million, against the analyst consensus of $868 million, and adjusted EPS of $0.32-$0.36, against the analyst consensus of $0.31.

Arm is trying to emphsize its position as a critical chip design provider by offering more complete technology blueprints to companies such as Amazon.com Inc’s AMZN AWS, Bloomberg reported. Arm’s latest initiatives make it a direct competitor of Qualcomm Inc QCOM.

BofA Securities analyst Vivek Arya reiterated a Buy rating on Arm with a price target of $150.

Arya noted Arm as a critical beneficiary of AI adoption at the edge (phones, PCs) and for its ability to displace traditional x86 — Intel Corp INTC, Advanced Micro Devices, Inc AMD — in data center server CPU infrastructure. 

The analyst flagged that nearly 20% of Arm’s royalty sales are driven by adopting its latest version 9 or v9 architecture that enables AI and security features and drives ~2x the royalty rate vs. prior v8 generation. ARM expects a further 2x boost in royalty rate as customers adopt its higher value-add compute subsystem (CSS) intellectual property.

Arya also highlighted ARM’s FCF generation at 32% of sales last year, which he expects to jump to 36% in fiscal 2025 and over 40% in fiscal 2026. He added that the FCF margin is higher than nearly every software and most semiconductor company in the S&P 500 index.

Needham analyst Charles Shi maintained a Hold rating on Arm.

Shi said Arm reported strong March 2024 quarter results that exceeded the consensus estimate and issued the first guidance for fiscal 2025 ending in March 2025, which is mainly in line with consensus.

Management also soft-guided to 20%+ growth of total revenue in fiscal 2026 and 2027, which again appeared to align with consensus. The analyst does not consider the outlook good enough to support a higher valuation for the stock.

Interestingly, he found Arm China once again led overall royalty growth in the March quarter. 

Rosenblatt analyst Hans Mosesmann reiterated a Buy rating on Arm with a price target of $180.

Arm delivered a March quarter beat and a June quarter mixed, with estimates slightly below Mosesmann’s projections but above consensus. For the first quarter, he expected broad-based licensing momentum to be offset by mixed royalty dynamics as infrastructure AI strength is countered by weakness or mixed results in the networking, Industrial, mobile, and IoT end markets.

It is noteworthy that Arm is increasingly bullish for the next several years on faster adoption of the v9 architecture and predicts it will account for over 50% of the market in the next 2-3 years, compared to only 7% for the previous v8 architecture, the analyst said. 

Mizuho analyst Vijay Rakesh reiterated a Buy rating on Arm with a price target of $160.

ARM continues to enjoy leverage via its leading >60% semiconductor IP market share while adding value to customers by lowering TCO and time to market, with improved design flexibility through its CSS and v9 ramps, Rakesh said.

Goldman Sachs analyst Toshiya Hari maintained a Buy rating on Arm with a price target of $110.

The re-rating reflected Arm’s potential for significant royalty rate expansion as customers transition from the v8 to v9 architecture and increasingly adopt Arm’s Compute Subsystem solutions, the potential for Arm to gain share, particularly in Cloud and Automotive, and Arm’sArm’s ability to expand margins and bottom-line earnings at a pace that significantly exceeds the broader Semiconductor industry.

JPMorgan analyst Harlan Sur remained Overweight on Arm with a price target of $115, up from $110.

ARM Price Action: Arm shares traded lower by 1.86% at $104.11 at the last check Thursday.

Photo: T. Schneider via Shutterstock