ARM Holdings experienced a significant surge in its stock price, rising 8% to close at $115.69 on Wednesday. This increase came on the heels of an upgrade from Susquehanna, which raised its rating to “Positive” with a target price of $150. The stock even reached an intraday high of $117.28, reversing a previous trend that saw the shares decline by 30% over the past six months.
The upgrade from Susquehanna is primarily attributed to ARM”s focus on expanding its AI chip capabilities, particularly with the development of a custom chip for OpenAI known as Titan-1. This project, which involves partnerships with SoftBank and Broadcom, is expected to generate over $1 billion in annual royalty revenue by late 2026. In comparison, total royalties for ARM are projected to be around $2.5 billion in 2025.
In its recently reported Q2 earnings, ARM exceeded expectations with an earnings per share (EPS) of $0.39, surpassing the $0.33 forecast. The company also reported a robust 34.5% year-over-year revenue growth, reaching $1.14 billion, above the anticipated $1.06 billion.
ARM”s new v9 architecture is critical to its growth strategy. This latest design commands approximately double the royalty rate of its predecessor, v8. While the current adoption of v9 is below the peak levels seen with v8, there is significant potential for growth as manufacturers transition to the new architecture. Major players like Samsung, MediaTek, and Xiaomi have already begun adopting integrated chip designs that leverage this new standard, leading to higher royalty payments.
Market sentiment around ARM remains mixed, with a Moderate Buy consensus reflected in MarketBeat data. The average price target sits at $175.50, though some analysts, including UBS, have adjusted their targets slightly downward. Institutional investor activity has notably increased, with Rathbones Group increasing its stake by an astounding 4,638.8% to over 500,000 shares.
As ARM positions itself to capitalize on the burgeoning demand for AI technologies and integrated chip solutions, its recent earnings report and strategic partnerships could pave the way for substantial revenue growth in the coming years.
