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

Several Wall Street brokerages have initiated coverage of Arm Holdings with top ratings, expressing confidence in the chip designer’s potential for earnings growth. Arm Holdings, which dominates the smartphone market, is also eyeing expansion into data centers, further bolstering its prospects.

The quiet period following Arm’s initial public offering, which raised $4.87 billion for owner SoftBank Group, has come to an end, leading to a flurry of recommendations from nearly 30 underwriting banks. Brokerages such as J.P. Morgan and Goldman Sachs have given the company a “buy” or equivalent rating, highlighting Arm’s strategy to increase revenue through higher royalty fees and its push into the cloud and automotive markets.

Goldman Sachs, setting a price target of $62, believes Arm will not only strengthen its presence in the smartphone market but also extend its reach into other applications. Other brokerages, including Citi, Deutsche Bank, Mizuho, and TD Cowen, have set price targets ranging from $60 to $70, with J.P. Morgan being the most bullish. Arm shares closed at $54.08, compared to the IPO price of $51.

While Arm faces challenges due to the weak smartphone market, TD Cowen believes that its current revenue underestimates its significance to the industry. Citi predicts that Arm could become one of the fastest-growing large chip companies, with an estimated annual revenue increase of 18% through fiscal year 2027. Such growth would benefit SoftBank, which intends to remain the majority owner of Arm.

However, HSBC urges caution, suggesting that Arm’s shares may remain range-bound due to uncertainty surrounding a smartphone market recovery and its impact on earnings. Prior to Monday, only analysts from brokerages not involved in Arm’s IPO were allowed to offer recommendations, with their opinions generally being more skeptical. However, as of Monday morning, at least 15 brokerages have initiated coverage on Arm, with a mean rating of “buy” and a median price target of $60.

In conclusion, Wall Street brokerages have shown confidence in Arm Holdings’ potential for earnings growth, driven by its dominance in the smartphone market and its expansion plans. With a range of price targets set by various brokerages, Arm Holdings aims to capitalize on its position as a key player in the chip design industry and further diversify its revenue streams.