Wall Street Brokerages Give Top Ratings to Arm Holdings, Expecting Earnings Growth

Several Wall Street brokerages have initiated coverage of Arm Holdings, the chip designer, with top ratings, citing its dominance in the smartphone market and potential for expansion into data centers. The brokerages’ recommendations come after the end of the quiet period for the banks that underwrote Arm’s recent initial public offering, which raised $4.87 billion for its owner, SoftBank Group.

The “buy” or equivalent ratings from brokerages such as J.P.Morgan and Goldman Sachs reflect confidence in Arm’s strategy to drive revenue growth by increasing royalty fees and expanding its presence in the cloud and automotive markets. Despite facing challenges from the weak smartphone market, Arm’s current revenue is seen as an under-monetization of its importance to the industry.

Goldman Sachs, setting a price target of $62, expects Arm to not only strengthen its position in the smartphone market but also extend its reach across other applications. Other brokerages, including Citi, Deutsche Bank, Mizuho, and TD Cowen, have set price targets ranging from $57 to $85, with Rosenblatt Securities being the most bullish.

While some brokerages, like HSBC, urge caution due to uncertainty surrounding the smartphone market recovery, at least 17 brokerages have initiated coverage on Arm, with an average rating of “buy” and a median price target of $63.50.

Arm’s growth potential is expected to benefit SoftBank, which plans to remain the majority owner in the company it considers its crown jewel. With the potential to become one of the fastest-growing large chip companies, Arm could experience a compounded annual revenue increase of 18% through fiscal year 2027, according to Citi.

Arm shares closed at $54.08, slightly above the IPO price of $51, and were up 0.6% on Monday, despite broader market weakness. The positive ratings from Wall Street brokerages highlight the market’s optimism regarding Arm’s future prospects in the chip design industry.