On Friday, Wells Fargo (NYSE:WFC) commenced coverage on Arm Holdings (NASDAQ:ARM) with a favorable Overweight rating and set a price target at $155. The financial institution anticipates that Arm Holdings will outperform market consensus forecasts, fueled by the transition to its v9 and CSS solutions, which are expected to attract higher royalty rates. Additionally, Wells Fargo projects modest market share gains for Arm-based CPUs in the PC and cloud infrastructure sectors.
The analysis by Wells Fargo suggests that Arm Holdings is positioned to surpass fiscal year 2026 royalty revenue expectations. This potential increase is attributed to a greater proportion of v9 and initial CSS adoption, both of which command increased royalty rates.
Even with a projection of flat year-over-year shipments of Arm-based semiconductors, Wells Fargo's estimates indicate that the current market expectations imply a high-40% range for v9 and a high single-digit percentage range for CSS royalty mix by fiscal year 2026.
Wells Fargo's initiation report highlights the potential for a modest recovery in Arm-based semiconductor shipments, which could offer slight benefits to the Street's fiscal year 2026 royalty revenue estimates for the company. The financial firm's outlook is based on an analysis that does not require significant growth in shipments, but rather leverages the higher royalty rates associated with Arm's latest technology offerings.
The Overweight rating reflects Wells Fargo's confidence in Arm Holdings' ability to achieve these financial milestones. The price target of $155 indicates the firm's expectation for the stock's performance, signaling a positive outlook for investors interested in Arm Holdings.
Arm Holdings, known for its semiconductor and software design, is expected to capitalize on its advanced v9 and CSS solutions. These developments are set to contribute to the company's financial growth and market positioning in the coming fiscal years, as outlined by Wells Fargo's recent coverage initiation.
In other recent news, Arm Holdings reported robust financial results for the second quarter of fiscal year 2025, with total revenue reaching $844 million, exceeding expectations. This growth was largely attributed to a 23% year-over-year increase in royalty revenue, driven by a 40% surge in smartphone royalties following the adoption of the company's Armv9 technology. Despite a 15% decline, licensing revenue outperformed expectations with an annualized contract value increase of 13%.
Loop Capital recently maintained a positive outlook on Arm Holdings, raising the price target to $180 from the previous $130 while keeping a Buy rating. The firm's decision followed the company's recent earnings report. Loop Capital anticipates significant growth in the Data Center segment and potential expansion into the PC market, offering further growth opportunities for Arm Holdings.
In addition, Arm Holdings projects a 40-45% increase in licensing revenue for the fiscal year, and a continued 23% year-over-year growth in royalties across various sectors. The company also announced significant partnerships with Apple (NASDAQ:AAPL) and MediaTek, highlighting the demand for Arm's Compute platform.
InvestingPro Insights
Wells Fargo's optimistic outlook on Arm Holdings aligns with several key metrics and insights from InvestingPro. The company's strong financial performance is reflected in its impressive revenue growth of 24.56% over the last twelve months, with a robust gross profit margin of 95.98%. This supports Wells Fargo's expectation that Arm will outperform market consensus forecasts.
InvestingPro Tips highlight that Arm's net income is expected to grow this year, and 14 analysts have revised their earnings upwards for the upcoming period. These tips corroborate Wells Fargo's positive stance on the company's future performance, particularly as it transitions to v9 and CSS solutions with higher royalty rates.
The company's high return over the last year, with a one-year price total return of 115.58%, demonstrates strong market confidence in Arm's strategy and growth potential. This exceptional performance aligns with Wells Fargo's Overweight rating and $155 price target.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips that could provide further insights into Arm Holdings' market position and financial outlook.
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