Arm’s Shares Rise as Analysts Give Positive Ratings
Arm’s Dominance in Smartphone Market and Potential Expansion into Data Centers Drive Stock Growth
Shares of Arm Holdings rose by 3% on Monday following a wave of “buy” ratings from Wall Street analysts. These analysts believe that Arm’s strong position in the smartphone market and its potential for expansion into data centers will drive earnings growth. This positive sentiment comes after the end of the quiet period for the banks that underwrote Arm’s initial public offering, which raised $4.87 billion for SoftBank Group, the company’s owner.
Confidence in Arm’s Revenue Growth Strategy
The “buy” ratings from brokerages such as J.P.Morgan and Goldman Sachs demonstrate confidence in Arm’s plan to increase revenue through higher royalty fees and expanding its share of the cloud and automotive markets. Previously, only brokerages not involved in the IPO were allowed to offer recommendations on the stock, and their opinions were more skeptical due to concerns about the smartphone market slump and Arm’s diversification efforts. However, with the end of the quiet period, more positive ratings have emerged.
Arm’s Position in the Smartphone Market
Arm currently holds a 99% share in the smartphone market, across both Android and iOS devices. This dominant position has contributed significantly to the company’s revenue. Goldman Sachs predicts that Arm will continue to expand its presence in the smartphone market, primarily through higher royalty rates, while also extending its reach across other applications.
Price Targets and Growth Potential
Brokerages including Citi, Deutsche Bank, and TD Cowen have set price targets for Arm’s shares in the range of $57 to $85. Citi predicts that Arm could become one of the fastest-growing large chip companies, with a compounded annual revenue increase of 18% through fiscal year 2027. This growth potential is expected to benefit SoftBank, which plans to remain the majority owner of Arm.
Caution Amid Smartphone Market Uncertainty
While many brokerages have given positive ratings, some like HSBC urge caution, suggesting that Arm’s shares could remain range-bound due to uncertainties surrounding the recovery of the smartphone market. Despite this, at least 17 brokerages have started covering Arm, with an average rating of “buy” and a median price target of $63.50.
Overall, the positive ratings from Wall Street analysts reflect confidence in Arm’s revenue growth strategy and its potential for expansion beyond the smartphone market. Arm’s dominant position in the smartphone market and its plans to increase royalty fees and expand into new markets make it an attractive investment opportunity. However, uncertainties surrounding the smartphone market’s recovery should be considered when evaluating the stock’s future performance.