Arm Holdings, a major player in the semiconductor industry, has been given a "buy" rating and a price target of $160 per share by UBS.
The analysts at UBS believe that Arm is well-positioned to take advantage of the growing trend of artificial intelligence applications, particularly in data centers and personal computing.
While the smartphone segment, which accounts for half of Arm's revenue, is considered a mature market, UBS expects Arm to outperform the industry through increased royalty rates and the growing importance of processors in device costs.
UBS projects a 23% compounded annual growth rate in smartphone royalties from 2023 to 2025.
In the personal computing market, UBS predicts that Arm will increase its market share from 17% in 2023 to 22% by 2028, driven by collaborations with companies like Qualcomm and Nvidia.
The data center market also presents a promising opportunity for Arm, with projections indicating a rise in its server market share from 5% in 2023 to 16% by 2028.
This growth is attributed to the adoption of Arm-based architectures by major hyperscalers like Amazon, Google, and Microsoft.
UBS highlights Arm's strong commitment to research and development, with investments expected to remain around 35% of revenue.
Despite UBS describing Arm's valuation as "rich," the brokerage justifies its positive outlook based on Arm's growth potential.
However, UBS also acknowledges several risks that could impact Arm's performance, including geopolitical tensions, competition from other architectures, and challenges associated with Arm China.
Overall, Arm Holdings is seen as a leading innovator in the semiconductor industry, particularly in sectors poised for growth, and is well-positioned to capitalize on emerging opportunities through its focus on artificial intelligence and strategic partnerships.