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On Thursday, Raymond (NSE:RYMD) James analyst Srini Pajjuri revised the price target for Arm Holdings (NASDAQ:ARM), reducing it to $140.00 from the previous $175.00. Despite the adjustment, Pajjuri maintained an Outperform rating on the company’s stock. The revision follows Arm Holdings’ fourth fiscal quarter results, which surpassed expectations, and a first-quarter outlook that was deemed slightly weaker. According to InvestingPro data, ARM has shown strong momentum with a 7.62% return over the past week, though current valuations suggest the stock is trading above its Fair Value.
Arm Holdings reported an 18% year-over-year increase in royalty revenue, outperforming Raymond James’ projections due to stronger than anticipated adoption of its ARMv9 architecture. With an impressive gross margin of 96.37% and overall revenue growth of 25.73% in the last twelve months, the company continues to demonstrate strong operational efficiency. The ARMv9 now accounts for 30% of the revenue mix, marking a 5 percentage point increase quarter-over-quarter. Pajjuri expressed optimism about the potential for further penetration of the v9 technology and was buoyed by the initial success of the company’s Cortex System-on-a-Chip solutions, which include products like MediaTek 9400, NVIDIA (NASDAQ:NVDA) Spark, and Microsoft (NASDAQ:MSFT) Cobalt, noting that these could effectively double the royalty rate.
Licensing revenue also saw significant growth, rising 53% year-over-year, fueled by several large deals. This figure was slightly below the firm’s model. Arm Holdings refrained from providing full-year guidance, citing the limited visibility from customers due to uncertainties surrounding tariffs. Nonetheless, the management’s commentary suggested expectations for high-teens revenue growth in fiscal year 2026, which falls short of the consensus forecast for low 20% growth.
The more cautious outlook is attributed to macroeconomic factors. However, the analyst found reasons for positivity, including robust adoption of the v9 architecture and Cortex System-on-a-Chip solutions, as well as expanding opportunities in the data center sector, exemplified by NVIDIA’s GB200 and custom CPUs from AWS, Microsoft, and Google (NASDAQ:GOOGL). Additionally, the development of efficient AI models like DeepSeek, which benefit from ARM’s dominance in edge computing, was highlighted as a key positive factor. InvestingPro analysis reveals the company maintains a healthy financial position with a current ratio of 4.96 and operates with moderate debt levels. For deeper insights into ARM’s financial health and growth prospects, subscribers can access the comprehensive Pro Research Report, which includes detailed analysis of the company’s competitive position in the semiconductor industry.
In light of these insights, Raymond James has recalibrated its estimates for Arm Holdings and reaffirmed the Outperform rating despite the lowered price target from $175 to $140.
In other recent news, Arm Holdings reported a strong quarter with revenue reaching $983 million, surpassing both its own guidance of $945 million and consensus estimates of $947 million. The company’s growth was driven by an increase in royalties, particularly due to the adoption of its v9 technology, which commands higher royalty rates. Despite these positive results, Bernstein analysts maintained their Underperform rating on Arm Holdings with a steady price target of $100, citing concerns over the company’s valuation. Meanwhile, HSBC analyst Frank Lee reduced the price target for Arm Holdings to $95, maintaining a Reduce rating, citing potential downside in fiscal year 2026 earnings due to necessary investments for growth.
In a strategic move, Arm Holdings announced plans to sell its Artisan foundation IP business to Cadence Design (NASDAQ:CDNS) Systems, with the deal expected to close in the third quarter of 2025. This acquisition aims to enhance Cadence’s design IP offerings. Additionally, Arm Holdings is involved in a legal dispute with Qualcomm (NASDAQ:QCOM) over alleged anti-competitive behavior, with a court-ordered mediation set for May. Citi, however, reiterated its Buy rating and $200 price target for Arm Holdings, highlighting the company’s adaptability and strong licensing revenue. Lastly, Arm Holdings is reportedly recruiting from its customer base and considering selling its own chips, marking a significant shift in its business model.
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