Arm Holdings PLC (ARM) has been initiated with a Buy rating and a price target of $160 by UBS, highlighting the increasing demand for Arm's intellectual property in AI, cloud computing, and data centers as key drivers for future growth.
UBS analysts believe that Arm's power-optimized CPU architectures will enable the company to capture a larger share of the expanding markets in AI, cloud computing, and data centers.
Despite Arm's established presence in the smartphone sector, the company is expected to outpace overall market growth due to rising license fees and higher processor costs in modern devices.
Other financial institutions, such as Wells Fargo and JP Morgan, also share this optimistic sentiment. Wells Fargo has issued an "Overweight" rating, while JP Morgan has raised its target to $160.
Arm's second-quarter earnings report for fiscal 2025 showed adjusted earnings per share of $0.30, surpassing analyst estimates, with revenue reaching $844 million.
The company experienced a 23% year-on-year increase in license revenue, driven by the wider adoption of ARMv9 technology. However, challenges with new license agreements led to a 15% year-over-year decline in license and other revenue.
Arm's growth opportunities in AI edge computing, automotive applications, and IoT present new avenues for growth, but the company must navigate its challenges effectively.
Arm's current valuation ratios, including a high price-to-earnings (P/E) ratio and price-to-sales ratio, raise concerns, especially when compared to competitors like Nvidia and AMD. The recent lawsuit against Qualcomm poses a significant risk for Arm, as Qualcomm generates a significant portion of Arm's total revenue.
From a technical perspective, Arm's share price has experienced significant volatility, and investors are advised to exercise caution.