Raymond James Raises Arm Holdings Price Target to $641
Raymond James analyst Simon Leopold raised the price target on Arm Holdings (NASDAQ: ARM) to $641 (from $565) while maintaining a Outperform rating.
“Outperform-rated ARM’s CPU exposure is nuanced and disclosures are inadequate.
Arm’s primary source of sales comes through royalties and licensing, and we estimate that less than 20% of TTM royalty revenue comes from servers, but this exceeds a third of revenue in FY28.
Arm will enter the fabless market and sell its own CPU starting in late FY27. We support Arm’s decision to implement a fabless model to offer its CPUs.
Our model reflects Arm’s fabless model CPU sales at $1.4B in FY28, which exceeds management’s forecast for sales of ~$1B, but remains below the demand for $2B management disclosed on the most recent call.
Our extension reflects FY29 CPU sales of $2.7B, and $2.5B in CY28.
When Arm announced its entry into the fabless CPU market, it predicted it would reach $15B sales by FY31, and this target still appears optimistic to us.
Valuation: Our $272 price target reflects a sum of the parts to isolate the value of the IP business from the new fabless model.
We apply a 78x multiple to the royalties plus licensing EPS, near the 5-year median, and we apply a 35x to the EPS from the fabless business, a premium to similar AI exposed chip vendors to account for the high growth and strong demand.
Bull Case for Arm reflects the ratio of CPUs to accelerators narrowing from 1:8 recently toward 1:1, with a further boost through a greater uptake of accelerators that captured in our forecasts. ● Our bull case reflects Arm’s CY28 CPU revenue closer to $2.7B, vs our $2.5B, with the bottleneck reflecting manufacturing capacity at TSMC. ● Royalty revenue comes up to $5.4B in our bull case scenario, reflecting more aggressive deployments of Arm based CPUs in hyperscaler clusters from customers like Amazon and Google.”
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