Morgan Stanley upgraded Arm Holdings (NASDAQ:ARM) from Equal-weight to Overweight, raising the price target from $107 to $190 in a note to clients Friday.
The investment bank's upgrade highlights Arm's pivotal role in the burgeoning field of edge AI, underpinned by its power-efficient compute architecture and extensive developer community.
According to Morgan Stanley, "Arm's power efficient compute architecture, huge developer community and breadth of offering gives it centrality within edge AI."
Analysts explain that this centrality is crucial as edge AI, which involves processing machine learning on local devices rather than in the cloud, becomes increasingly important.
Furthermore, Morgan Stanley believes Arm's ability to scale compute efficiently across a wide range of end markets, supported by numerous licensee partners, positions it well to capitalize on this trend.
Morgan Stanley notes significant growth potential in Arm's key markets. Smartphone royalties are expected to grow to $1.87 billion by FY27, driven partly by a robust iPhone upgrade cycle.
Additionally, the automotive sector is said to present a substantial opportunity, with automotive royalties set to more than double by FY27. While AI PCs are also considered additive to Arm's prospects, the immediate impact of Windows-on-Arm is deemed less significant.
Analysts emphasize that "Arm products [are] fundamental to the successful emergence of edge AI - mobile, autos, PCs and more." As such, Morgan Stanley has raised its EPS estimate for Arm to $3.88 in FY27, reflecting an earnings CAGR of 46%.
This revision underlines the growing market opportunities within smartphones and automotive sectors, and the increasing demand for edge AI capabilities.
Overall, Morgan Stanley's upgrade underscores their belief in Arm's strategic importance in the AI landscape, bolstered by its robust technology and expansive developer network.