HSBC Lowers Arm Holdings Price Target to $215

HSBC analyst Frank Lee lowered the price target on Arm Holdings (NASDAQ: ARM) to $215 (from $230) while maintaining a Hold rating.

“2QFY27 licensing sales of USD773m was 15%/16% above HSBC/consensus estimates offsetting weaker royalty revenues.

Licensing remains a key driver in 3QFY27 guidance with >50% y-o-y growth relative to royalty y-o-y growth of low single-digit percentage.

Management continues to attribute weaker royalty revenue momentum to smartphone exposure as overall demand remains hampered by rising memory costs.

Arm reiterated view of increasing confidence of AGI CPU revenue opportunity of USD2bn across FY27-FY28 as it begins to ship AI AGI CPU in 4QFY27 (1QCY27).

However, Arm has not officially raised its AGI CPU revenue guidance beyond USD1bn given ongoing uncertainties over execution even its first merchant CPU chip ramp up beyond supply side constraints seems to be improving.

Hence, we believe server royalties remain the key earnings catalyst upside with the clearest visibility over the next 12 month given increasing server CPU TAM and Arm market share along with rising CPU core count which increases royalty ASP per chip.

Arm management has also acknowledged server royalty growth of >100% over the next years which implies server royalty revenue of USD400m and >USD700m in FY27 and FY28 assuming FY26e base of USD183m.

Hence, server royalty revenues could be approaching FY27-FY28 AGI CPU revenue guide of USD1bn.”

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