On Monday, BofA Securities updated its outlook on Arm Holdings (NASDAQ:ARM) shares, raising the price target to $180 from the previous $150, while reaffirming its Buy rating on the stock.
The firm's analysis suggests that Arm Holdings is poised for growth due to two main factors: the accelerated adoption of its v9 architecture and market share gains over competitors such as Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD).
The firm anticipates that the transition to Arm's v9 architecture, which could potentially double or increase royalty rates by 4-5%, alongside a complete compute solution that might quadruple or boost rates by 8-10%, will be significant growth drivers.
Additionally, the adoption of Arm technology by more licensees, which is expected to deliver power-efficient processors for client and data center applications, is seen as a catalyst for market share gains against established rivals that rely on x86 architecture.
The new price objective of $180 is based on unchanged earnings estimates but applies a higher price-to-earnings (PE) multiple of 95 times the calendar year 2025 earnings, compared to the prior 79 times.
Despite the increase, the price-to-earnings-growth (PEG) ratio remains within the firm's target range of 2 to 3 times. This valuation also falls within the range of growth comparisons, where trading multiples range from 19 to 134 times the calendar year 2025 PE.
In conjunction with its optimistic stance on Arm Holdings, BofA Securities has also revised its forecasts for Micron Technology (NASDAQ:MU), increasing the fiscal year 2024 and 2025 earnings estimates by 28% and 21% to $0.85 and $8.70, respectively.
The price objective for Micron has been adjusted to $170 from $144, reflecting a higher price-to-book (P/B) multiple of 3.1 times for the calendar year 2025, up from the previous 2.8 times.
The firm expects Micron to benefit significantly from the growing market for high-bandwidth memory in cloud computing and the annual 12-15% increase in DRAM requirements to support advancements in AI, PCs, and smartphones.
This positive outlook on Micron is aligned with the broader expectations for growth in the technology sector, particularly in areas that leverage advanced memory and processing capabilities.
In other recent news, Arm Holdings has been added to the Nasdaq-100 Index, reflecting its growing influence in the technology sector. This development follows the company's record revenue growth for two consecutive quarters, with the revenue surpassing expectations at $928 million.
The company also reported exceptional Q4 results for fiscal year 2024, with revenues increasing by 47% year-over-year. Analysts from Rosenblatt Securities and Bernstein SocGen Group have provided insights on Arm Holdings.
Rosenblatt maintains a Buy rating on the company, while Bernstein SocGen Group raised the price target from $72 to $92 but maintains an underperform rating. Arm Holdings anticipates over 20% revenue growth in the upcoming year, aiming to reach $4 billion in revenue.
However, its guidance for fiscal year 2025 did not exceed investor expectations, with the forecast for Q1 revenue set at $900 million and full-year revenue projected at $3.95 billion. These are some of the recent developments for Arm Holdings.
InvestingPro Insights
Arm Holdings (NASDAQ:ARM) is demonstrating robust financial health and market performance according to recent InvestingPro data. With a significant market capitalization of $164.26 billion, the company stands as a heavyweight in the technology sector. Although the P/E ratio is currently high at 539.49, reflecting a market that expects continued growth, the company’s revenue has shown impressive growth over the last twelve months, increasing by 20.68%. This revenue growth is complemented by a substantial quarterly surge of 46.6%, indicating strong business momentum.
InvestingPro Tips reveal that analysts are optimistic about Arm’s future earnings, with 7 analysts revising their earnings upwards for the upcoming period, which aligns with BofA Securities' positive outlook. Additionally, the stock has experienced a significant return over the last week, with a 12.85% price total return, and a remarkable annual return of 148.29%, suggesting robust investor confidence. These metrics reinforce the firm’s decision to raise the price target and maintain a Buy rating for Arm Holdings.
For investors looking for deeper insights and additional tips, there are 19 more InvestingPro Tips available for Arm Holdings, which can be accessed by visiting https://www.investing.com/pro/ARM. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of information to guide investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.