Arm Holdings plc experienced a notable 5% increase in its stock on Thursday, following the release of its fiscal third-quarter results which outperformed analyst expectations. The British chip designer, predominantly owned by SoftBank, reported robust royalty revenue, primarily driven by its high-end smartphone chips.
Despite this positive momentum, analysts have indicated that fears surrounding a slowdown in smartphone demand may be exaggerated. Although the company demonstrated strength in earnings, particularly from its latest chip technology, concerns linger about the performance of its licensing segment, which fell short of projections.
Arm”s royalty revenues were significantly bolstered by the demand for its advanced chips utilized in premium smartphones. Nevertheless, the underperformance in licensing revenue raised apprehensions regarding the company”s future growth potential, especially in light of increasing competition in the AI chip market.
Several analysts remain optimistic about Arm”s long-term prospects. Jefferies has maintained a Buy rating but adjusted its price target to $170 from $205, citing potential challenges stemming from memory price fluctuations. They believe that growth in data centers and the rising adoption of premium smartphones could mitigate risks associated with declining smartphone volumes.
Needham retained a Hold rating, highlighting the potential benefits of SoftBank“s investments in AI, which could enhance Arm”s overall performance. The firm projects a growth rate of 20% for fiscal year 2027, with possible acceleration in 2028 driven by custom silicon initiatives.
Morgan Stanley also expressed a positive outlook, forecasting Q4 revenue of $1.42 billion, which is slightly above consensus estimates. Overall, while Arm faces challenges, the consensus among analysts suggests a cautiously optimistic view of the company”s future.
