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Arm Holding Company shares (NASDAQ: ARM) Owns Jumped more than 130% Year-to-date, the AI spending boom continues. But as AI starts to reach the edge, the British chip designer is poised to reap big rewards, according to a Morgan Stanley report. Stanley said.
Arm, which is partly owned by SoftBank (OTCPK:SFTBY), has multiple ways to benefit as AI moves to the edge, or consumer devices: custom silicon, new designs, and add-ons, the Wall Street firm said.
As such, the company expects its total serviceable market to exceed $14 billion by 2027, including $4.44 billion for smartphones (with projected revenue of $1.87 billion), $1.45 billion for automotive (with projected revenue of $0.33 billion), and $7.92 billion for AI-powered PCs (with projected revenue of $0.38 billion). “We would like to note that we are more cautious about the AI-powered PC opportunity given the historical precedent of competition in the PC space. This is reflected in our expectations of a relatively small acquisition of revenue relative to the potential AI-powered PC market size,” analysts at the company wrote in a note to investors.
Morgan Stanley raised its rating on Arm from overweight to equal weight. It also raised its price target to $190 from $107, based on expectations of $3.88 per share in 2027, up from $1.57 per share this year.
Artificial Intelligence Opportunities
Arm has a wide reputation in the tech space, as its customer list is a who’s who of the sector: it counts Apple (AAPL), Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) and a host of others as clients.
Arm generates the vast majority of its revenue by licensing its intellectual property to the above-mentioned companies and a host of others. That’s why investors were concerned in May when the company gave guidance for the rest of the year that fell short of expectations. However, Morgan Stanley believes the company “understated” its licensing guidance, which could set it up to report better-than-expected results.
Additionally, a number of media reports have indicated that Apple (AAPL) is likely to increase its iPhone shipments this year, which should positively impact Arm, according to Morgan Stanley.
Finally, Morgan Stanley noted that Arm’s subcomputing deployments (due in 2025 and beyond) are being ignored.
“Overall, we believe these advanced AI opportunities have explained some of the share price action so far this year, but our assessment of the true (addressable) market for each, coupled with the potential for Arm to capture more CPU functionality, suggests there is more upside to the Arm story,” the analysts wrote.
Analysts are largely bullish on ARM. Catch Rated by Seeking Alpha authors, while Wall Street analysts rate it as He buysConversely, Seeking Alpha’s quantitative analysis system, which consistently outperforms the market, does not have a rating on ARM.