JPMorgan cuts Arm Holdings price target to $150, keeps overweight

On Thursday, JPMorgan analyst Harlan Sur adjusted the price target for Arm Holdings (NASDAQ:ARM) to $150 from the previous $175, while maintaining an Overweight rating on the stock. The adjustment follows Arm Holdings’ fiscal fourth quarter results for 2025, which showcased better-than-expected revenues, margins, and earnings per share (EPS). With a remarkable gross profit margin of 96.4% and current market capitalization of $131 billion, ARM has demonstrated strong financial performance. The company’s success was attributed to record licensing and royalty revenues, alongside a slight decrease in operational expenses.

Arm Holdings reported a re-acceleration in v9 penetration, which reached 30% of royalty revenues in the March quarter. This uptick reflects the rapid adoption of v9-based compute platforms, particularly in the mobile sector, with significant year-over-year growth in automotive and industrial segments as well. The company’s strong market position is reflected in its impressive 25.7% revenue growth over the last twelve months, reaching $3.7 billion. For the June quarter, Arm anticipates revenues of $1.05 billion, which is a 15% decrease from the previous quarter but a 12% increase year-over-year. This forecast falls short of the consensus estimate of $1.1 billion, mainly due to slightly weaker licensing and royalty revenues. However, royalties are still expected to rise by 25-30% year-over-year, driven by strong trends in mobile, infrastructure/cloud, and automotive sectors.InvestingPro analysis reveals that ARM maintains a strong financial health score, with liquid assets significantly exceeding short-term obligations. Subscribers can access 13 additional exclusive ProTips and comprehensive valuation metrics for deeper insights.

The guidance for EPS is set at $0.34, below the consensus estimate of $0.42, influenced by marginally lower revenues and increased operational spending. While trading at a P/E ratio of 160.2x, InvestingPro data suggests the company is operating with moderate debt levels and maintains a healthy current ratio of 4.96x. Arm’s total backlog at the end of the fiscal year decreased by 10%, with full-year orders/bookings down by 27% year-over-year. Despite this, the annualized contract value in the fourth quarter showed a strong increase of 15% year-over-year.

The company has opted not to provide full fiscal year guidance, citing uncertainties related to trade and tariffs, which could impact around 55% of its total royalty business. The report also notes that Arm’s research and development spending will be aggressive, with operational expenses expected to outpace revenue growth by approximately 500 basis points. This indicates that operating margins may slightly decline. Nonetheless, Arm continues to concentrate on system-level, software, and AI initiatives, which are anticipated to be key differentiators in future product performance.

An emerging trend mentioned by the analyst is the shift of some of Arm’s largest customers towards custom ARM cores, as evidenced by NVIDIA (NASDAQ:NVDA)’s unveiling of its next-generation AI server CPU, Vera, with custom-designed ARM cores. This move mirrors similar strategies by Qualcomm (NASDAQ:QCOM) and Apple (NASDAQ:AAPL), suggesting a drive for better performance and potentially more favorable economics through lower royalties as opposed to standard solutions.

In conclusion, JPMorgan has revised its projections to factor in increased trade and tariff uncertainties expected in the second half of the current calendar year, leading to the reduced price target for Arm Holdings while still expressing confidence in the stock with an Overweight rating.

In other recent news, Arm Holdings reported fourth-quarter sales of $1.24 billion, aligning with projections, with royalty revenues exceeding expectations at $607 million. However, licensing revenue was below expectations, coming in at $634 million. The company’s adjusted operating profit reached $655 million, surpassing consensus estimates, while earnings per share were reported at 55 cents, slightly above the anticipated 53 cents. Looking ahead, Arm Holdings provided guidance for the first quarter with expected sales between $1.0 billion and $1.1 billion, in line with forecasts, but earnings per share are projected to fall short due to increased operating expenses.

Morgan Stanley (NYSE:MS) maintained an Overweight rating on Arm Holdings, noting a robust performance and strategic investments to expand its engineering base. William Blair also reaffirmed its Outperform rating, highlighting the company’s strong core business and growth in data centers. Meanwhile, BofA Securities adjusted its price target to $135, maintaining a Buy rating, while Barclays (LON:BARC) lowered its target to $115, citing a seasonal decline in royalties. Raymond (NSE:RYMD) James reduced its price target to $140 but kept an Outperform rating, expressing optimism about the company’s ARMv9 architecture and data center opportunities.

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