On Wednesday, Citi reaffirmed its Buy rating and $170.00 stock price target for Arm Holdings (NASDAQ: NASDAQ:ARM), despite the recent intensification of its legal dispute with Qualcomm (NASDAQ:QCOM). The conflict escalated when Arm issued a 60-day notice to terminate Qualcomm's architectural license agreement, a move reported by Bloomberg.
This action is part of an ongoing legal case stemming from disagreements over the license agreement Qualcomm obtained through its acquisition of Nuvia.
The analyst from Citi noted that Qualcomm's use of Nuvia-designed 'Oryon' Arm cores in its Snapdragon PC chips has so far been a minor source of revenue for Arm.
However, this week, Qualcomm expanded the use of Oryon cores to its mobile platforms, which significantly contribute to approximately 10% of Arm's revenue from Qualcomm. Arm has not made any public statements regarding the recent developments due to their quiet period.
The escalation is seen by Citi as a strategic move in the ongoing negotiations. The firm believes that Arm is unlikely to want one of its largest partners to cease chip production but is instead aiming to ensure they receive fair compensation for the use of their licensed technology.
The dispute highlights the complexities of licensing agreements and negotiations in the tech industry, especially when significant revenue streams and partnerships are involved.
In other recent news, Arm Holdings, a prominent player in the computing technology sector, has been making significant strides. The company reported a 39% year-on-year revenue growth, driven by licensing and royalty revenue, particularly in AI applications and smartphone segments. It maintains its revenue guidance for the fiscal year between $3.8 billion and $4.1 billion.
The company's recent inclusion in the PHLX Semiconductor Sector Index, a benchmark for the semiconductor sector, marks a significant milestone in its growth. On the executive front, Arm appointed industry veteran Young Sohn to its board of directors, a move expected to support the company's growth in key markets and development of computing platforms for the AI era.
Rosenblatt maintains a positive outlook on Arm, highlighting its recent expansion of the Arm Total Design program and projecting significant royalty revenues. Analysts from Morgan Stanley (NYSE:MS), Loop Capital, and TD Cowen also reaffirmed their positive ratings on Arm, highlighting the company's potential to capitalize on the shift towards edge AI and the increasing adoption of Armv9 architecture in mobile devices.
In the broader semiconductor industry, Marvell (NASDAQ:MRVL) Technology Group Ltd maintained its Buy rating despite the Intel Corp and Amazon (NASDAQ:AMZN) Web Services deal, suggesting minimal impact on Marvell due to its leadership in supplying ARM-based critical IP building blocks.
Truist Securities held its rating for Intel Corporation (NASDAQ:INTC), acknowledging recent strategic developments but maintaining that these do not offset the challenges facing the company.
InvestingPro Insights
Arm Holdings' recent legal maneuvers with Qualcomm come against a backdrop of strong financial performance and market positioning. According to InvestingPro data, Arm boasts a substantial market capitalization of $159.9 billion, reflecting investor confidence in its long-term prospects. The company's revenue growth is particularly noteworthy, with a 31.37% increase over the last twelve months and an impressive 39.11% quarterly growth as of Q1 2025.
InvestingPro Tips highlight that Arm operates with a moderate level of debt and has liquid assets exceeding short-term obligations, suggesting a solid financial foundation as it navigates its legal challenges. Moreover, the company has shown a strong return over the last year, with a remarkable 203.88% price total return over the past year.
However, investors should note that Arm is trading at high valuation multiples across various metrics, including earnings, EBIT, EBITDA, and revenue. This premium valuation underscores the market's optimistic outlook on Arm's future, possibly factoring in its dominant position in the chip design market and potential growth from expanding licensing agreements.
For those interested in a deeper analysis, InvestingPro offers 13 additional tips for Arm Holdings, providing a more comprehensive view of the company's financial health and market position.
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