On Wednesday, Mizuho (NYSE:MFG) Securities reiterated its positive stance on Arm Holdings (NASDAQ:ARM), maintaining an Outperform rating and a price target of $160.00. The stock, currently trading at $142.80, has demonstrated remarkable strength with a 107% return over the past year according to InvestingPro data.
The firm adjusted its future earnings estimates for the company, anticipating an increase in the top line by 22% for the fiscal year 2025 and 25% for 2026. This revision reflects a slight shift from the previous estimates, which projected a 25% increase for 2025 and a 23% increase for 2026.
The optimism from Mizuho stems from several key developments at Arm Holdings. The firm highlighted the successful ramp-up of Neoverse data center chips, which are expected to power over 50% of instances and workloads at hyperscale data centers by 2025.
With a robust gross profit margin of 96% and strong financial health indicators, InvestingPro analysis shows ARM maintains excellent operational efficiency. Additionally, the adoption of Arm's V9 architecture is being driven by advancements in artificial intelligence, with the expectation that new models and the product mix could account for more than 25% by 2025.
Mizuho also pointed out the potential upside for Arm Holdings from the outcome of a recent lawsuit, noting that the trial began on December 16, 2024. The analyst believes that the company's position could be further strengthened by the results of this legal challenge.
In terms of valuation, Mizuho sees Arm Holdings as attractively priced compared to its peers, with a forward 2027 price-to-earnings growth (PEG) ratio of approximately 2.0 times. Current InvestingPro data shows ARM trading at a P/E ratio of 227.5x, reflecting high growth expectations.
Based on the InvestingPro Fair Value model, the stock appears to be trading above its intrinsic value. This suggests that the stock is trading at a discount relative to other companies in the sector.
The firm's continued confidence in Arm Holdings is also based on the company's strategic positioning.
For deeper insights into ARM's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro, which includes 13 additional key insights and detailed financial analysis.
The analyst expects Arm to benefit from the ongoing ramp-up of its V9 architecture and to gain traction in key areas such as data center artificial intelligence (DCAI) and custom silicon solutions.
In other recent news, semiconductor technology giant Arm Holdings has garnered attention with a series of significant developments. The company reported robust Q2 FY2025 results, with total revenue reaching $844 million, driven by a 23% year-over-year increase in royalty revenue.
Even with a 15% decline, licensing revenue exceeded expectations, bolstered by an annualized contract value increase of 13%. Arm Holdings anticipates a 40-45% increase in licensing revenue for the fiscal year, and a continued 23% year-over-year growth in royalties across various sectors.
Benchmark maintained its Hold rating on Arm Holdings shares, citing valuation concerns despite the company's strong industry standing. This stance reflects a cautious approach to the stock's premium pricing in relation to its earnings projections.
In contrast, UBS initiated coverage of Arm Holdings with a Buy rating, setting a price target of $160, suggesting a 20% upside potential. Wells Fargo (NYSE:WFC) also commenced coverage on Arm Holdings with an Overweight rating and a price target of $155, indicating potential growth from the company's v9 and CSS solutions.
Loop Capital maintained a positive outlook on Arm Holdings, raising the price target to $180 while keeping a Buy rating. The firm highlighted growth avenues, including the smartphone sector, the data center segment, and potential expansion into the PC market.
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