On Thursday, Evercore ISI increased its price target on Arm Holdings (NASDAQ:ARM) to $173 from $145, while keeping an Outperform rating on the stock. The firm cited several growth drivers, including the transition to the V9 architecture and the expansion of Custom Specific Standard Products (CSS).
The company's V9 products are now estimated to make up 25% of its revenue, a rise from 20% in the previous quarter. Additionally, ARM's CSS revenue is expected to climb from under $1 million to approximately 2% of total revenue by the fourth fiscal quarter, with further double-digit growth anticipated thereafter.
The demand for custom CPUs and AI in personal computers is also contributing to ARM's positive outlook. ARM is experiencing robust demand for custom CPUs on the cloud computing side. On the client side, the company expects ARM-based PCs to secure 50% market share within the next five years. This forecast is supported by Qualcomm (NASDAQ:QCOM)'s entry into the market in calendar year 2024 and the anticipation of additional competitors in the following year.
Evercore ISI's bullish stance on ARM Holdings (LON:ARM) is reinforced by the company's advantageous position in benefiting from three secular trends. The new price target of $173 is based on a 2.2x price/earnings to growth ratio (PEG Ratio) for the year 2027, reflecting a 30% three-year earnings per share (EPS) growth expectation.
This valuation corresponds to a price-to-earnings (P/E) ratio of 66 times the projected calendar year 2027 EPS of $2.89, discounted back one year at a rate of 10%.
In other recent news, Arm Holdings has been making significant strides with various financial firms adjusting their stance on the company's stock. Evercore ISI increased its price target on Arm Holdings to $173, citing growth drivers such as the transition to the V9 architecture and the expansion of Custom Specific Standard Products.
However, HSBC downgraded the company's stock from Hold to Reduce, expressing concerns over the company's stock performance and valuation.
Morgan Stanley upgraded Arm Holdings from Equalweight to Overweight, raising the price target to $190 based on the company's strong prospects in the Edge AI sector. BofA Securities also raised its price target to $180, citing potential growth from the company's v9 architecture and market share gains.
Rosenblatt Securities maintained a Buy rating on Arm Holdings, while Bernstein SocGen Group raised the price target from $72 to $92 but maintained an underperform rating.
Arm Holdings reported a 47% increase in revenues year-over-year for Q4 of fiscal year 2024 and projects over 20% revenue growth in the upcoming year, aiming to reach $4 billion in revenue. However, the forecast for fiscal year 2025, with Q1 revenue set at $900 million and full-year revenue projected at $3.95 billion, did not exceed investor expectations.
InvestingPro Insights
As Evercore ISI uplifts the price target for Arm Holdings (NASDAQ:ARM), the company's financial metrics and market performance provide additional context for investors. Arm Holdings is currently trading at a high earnings multiple, with a P/E ratio of 453.85, and an adjusted P/E ratio for the last twelve months of 2023 at 539.41, indicating high expectations for future earnings growth. Despite a significant price uptick over the last six months, with a 104.44% return, the company has maintained a strong return over the last three months at 51.3%. This aligns with the InvestingPro Tip that ARM's net income is expected to grow this year.
Additionally, ARM's revenue growth has been impressive, with a 20.68% increase in the last twelve months as of Q1 2023, and an even more remarkable quarterly growth rate of 46.6%. This financial vigor is further supported by a robust gross profit margin of 95.24%, demonstrating the company's ability to maintain profitability. However, investors should note that ARM operates with a moderate level of debt and is trading at a high revenue valuation multiple, which suggests a premium market valuation.
For those interested in deeper analysis, more InvestingPro Tips are available, including insights on ARM's liquid assets, debt levels, and valuation multiples. There are a total of 15 additional InvestingPro Tips for ARM at Investing.com/pro/ARM, offering a comprehensive view of the company's financial health and market prospects.
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