Arm Upgraded at Bernstein as Mobile and Cloud Growth Provide ‘More Elbow Room’

Analysts at Bernstein have recently upgraded Arm Holdings to a Market-Perform rating, increasing their price target from $92 to $100 per share. This adjustment reflects enhanced confidence in the growth prospects for mobile and cloud markets.

The firm noted a significant decline of approximately 40% in Arm’s stock price over the past month, prompting a reassessment of its valuation. With the anticipation that Arm’s v9 architecture will account for 40% of royalty revenues by the end of FY25—primarily from mobile apps—the analysts are optimistic about Arm’s market share gains in cloud computing.

Bernstein stated, “Given Arm’s share price drop of around 40% in four weeks and our growing confidence in mobile royalty growth, we feel it’s necessary to revisit our valuation perspective.”

The analysts project that these growth areas will drive an adjusted diluted EPS of 2.2 in FY26. Keeping their FY26 target price-to-earnings ratio at 45x, they have set a new target price of $100.

Arm has secured a strong market presence across various sectors, with its architecture powering 99% of mobile application processors, contributing significantly to its royalty revenues. Bernstein explained that Arm employs an upfront licensing fee along with a per-chip royalty fee, with royalties currently making up 50-60% of revenues and expected to rise to 80%.

Despite facing challenges in networking and industrial IoT, Bernstein observed a cyclical demand increase in mobile and consumer markets. This trend is driven by the rapid adoption of Arm’s v9 architecture, which can achieve royalty rates up to twice that of the previous version, v8.

In their investment assessment, Bernstein noted, “Following the recent derating, we believe the risk/reward profile is now more balanced, leading us to upgrade to Market-Perform.”

They also recognized potential risks from negative sentiment regarding AI and long-term challenges posed by RISC-V alternatives but underscored the growth potential in mobile and cloud sectors as fundamental to supporting Arm’s strong valuation.