Key insights
- BofA reiterated a Neutral rating on Arm ahead of its product event unveiling a standalone CPU for AI. This move could significantly expand Arm's market, but real products are 2-3 years away. Near-term challenges include weak smartphone sales impacting royalties. InvestingPro data suggests the stock is overvalued. Overall, the news has a slightly positive influence due to the long-term growth potential in the AI CPU market, but near-term headwinds and valuation concerns limit the impact.
Investing.com - BofA Securities reiterated a Neutral rating and $140.00 price target on Arm Holdings (NASDAQ:ARM) ahead of the company’s upcoming product event. The stock currently trades at $134.38, up 12% over the past week, though it remains well below its 52-week high of $183.16.
The firm previewed Arm’s March 24 "Arm Everywhere" event in San Francisco, where the company is expected to unveil its in-house designed standalone merchant CPU. The move represents a significant departure from Arm’s historical IP-licensing and royalty-based business model.
The new product would allow Arm to participate in the CPU market for agentic and inference AI, which BofA estimates will reach approximately $60 billion by 2030. The firm said the expansion could increase Arm’s addressable sales by 30 times and addressable EBIT by 20 times. The optimism is reflected in analyst sentiment, with 19 analysts revising their earnings upwards for the upcoming period, according to InvestingPro data. The company’s revenue growth of 26% over the last twelve months demonstrates strong momentum, though the stock trades at a high P/E ratio of 179.
BofA noted that real products could take two to three years to launch and fully ramp. The firm said Arm’s near-term outlook remains challenged by subdued smartphone units, which are expected to decline 10% to 20% year-over-year this year and affect approximately 50% of royalty sales. InvestingPro analysis suggests the stock is currently overvalued relative to its Fair Value, placing it among the most overvalued stocks in the market. For deeper insights, investors can access ARM’s comprehensive Pro Research Report, available for this and 1,400+ other US equities.
Potential customers of the new chiplet could include Stargate/OpenAI, Broadcom-based systems, Microsoft, Meta, and other SoftBank-owned CPU vendors such as Ampere, according to BofA. The firm maintained its Neutral rating until further visibility of meaningful share gains beyond its base case of 3% to 5% share for Arm CPUs.
In other recent news, Arm Holdings has been the subject of several analyst updates. HSBC upgraded Arm Holdings to a Buy from Reduce, citing the company’s potential growth in the AI server CPU market and raising its price target to $205. Morgan Stanley maintained an Overweight rating on Arm Holdings with a price target of $135, highlighting the company’s chiplet strategy as a point of focus for investors. BofA Securities also raised its price target on Arm Holdings to $140 from $135, with a Neutral rating, noting potential for increased market share by 2030. Additionally, NVIDIA’s latest 13F filing revealed that it has eliminated its stake in Arm Holdings, along with positions in Applied Digital and WeRide Inc. Meanwhile, Softbank Group’s stock fell 8.9% following its December quarter results, which showed that Arm Holdings and OpenAI now make up 65% of the company’s net asset value. These recent developments indicate a dynamic period for Arm Holdings as it navigates market changes and investor evaluations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.