The outlook for Arm Holdings’ chip-design licensing business is improving, says TD Cowen.
On Monday, analyst Matthew Ramsay reiterated his Outperform rating on Arm stock, and reaffirmed his $95 price target.
“We believe Arm represents a critical IP provider and scale enabler,” he wrote in a note titled “Fundamental Arm Thesis Gaining Momentum.”
He added: “While share-price volatility and valuation remains the elephants in the room, our conversations [with the company] give us further confidence in the momentum of both fundamentals and financials over the medium term.”
Arm shares dropped 2.9% to $134.07 on Tuesday. The analyst didn’t immediately respond to a request for comment about his price target being below the current market price.
The analyst said Arm technology is the essential component for more than $200 billion of industry chip revenue a year. He noted its importance for both Android and Apple iPhone smartphone platforms.
In the note, Ramsay says he expects stock volatility when the IPO lockup on selling for certain insiders ends, starting on March 12. SoftBank owns about 90% of Arm.
“We have not yet seen steps taken from SoftBank to be a material seller,” the analyst wrote.
Last month, Arm stock surged after the chip designer beat expectations for the December quarter, and offered a robust outlook for the March quarter.
In the earnings report investor letter, Arm management said the company is gaining market share in the cloud-server market and auto segments. It specifically cited the coming Nvidia GH200 AI Superchip datacenter systems, which incorporate Arm technology. Further, more customers are moving to advanced chip designs based on Armv9 technology, which generate double the royalty rates of Armv8 products.
Arm went public in September after pricing its initial public offering at $51 a share. The company makes money from licensing its chip architecture and other chip designs to semiconductor companies and hardware makers.
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