Shares of semiconductor architecture company Arm Holdings (NASDAQ: ARM) rallied again today, up another 5.4% as of 12:43 p.m. ET.
Arm had already seen a wave of analyst upgrades this week, but got even more positive news today, this time via a bullish initiation from analysts at Raymond James.
An AI uplift across end markets
Raymond James started coverage on Arm today, initiating the stock with a buy rating and a $160 price target.
The analysts are bullish on Arm due to what they see as widespread future adoption of the company’s V9 architecture. This new architecture is optimized for neural processing in artificial intelligence (AI) applications, and carries a price tag that’s twice the rate of the prior generation’s architecture. So as AI permeates more end markets, Arm should benefit handsomely from V9 adoption.
Apple‘s iPhone and Mac chips use the Arm architecture, and analysts believe the new iPhone 16 contains V9 to power the iPhone’s new Apple Intelligence services. Furthermore, Nvidia uses Arm for its Grace CPU, which accompanies Nvidia’s Hopper and Blackwell GPUs in its “superchip” reference designs for AI data center servers.
Raymond James sees Arm making bigger inroads into the server market, especially low-power edge AI servers, where Arm has traditionally had lower penetration. As the cherry on top, the analysts also predict Arm will eventually release a license for AI accelerators themselves. Currently, Arm is only used in CPUs and not accelerators, so that could lead to material upside.
Much enthusiasm is already in the price
Despite all this potential growth, Raymond James’ target price is only $160, a mere 15% above the stock price to start the day and 8.2% above the price as of this writing.
That’s likely a function of Arm already being an expensive stock, at 89 times earnings estimates for 2025 heading into today. So while Arm’s outlook is bullish, there isn’t much margin of safety in buying shares here.
Should you invest $1,000 in Arm Holdings right now?
Before you buy stock in Arm Holdings, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Arm Holdings wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $730,103!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 9, 2024
Billy Duberstein and/or his clients have positions in Apple. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
