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Investors should pick up shares of Arm as the world becomes increasingly reliant on the company’s intellectual property over time, according to KeyBanc. KeyBanc initiated coverage of the semiconductor and software design company with an overweight rating and $65 price target. The firm’s forecast implies more than 24% upside from Tuesday’s $52.29 close. “ARM stands to benefit as computing requirements across mobile, data center, auto, and IoT become increasingly more demanding and complex,” John Vinh said in a Tuesday note, noting the growing chip design complexity within the industry. “This will only increase the industry’s reliance on Arm IP, ultimately resulting in royalty rate expansion and market share gains.” Shares of Arm dipped 1.1% in premarket hours. The company went public in mid-September. ARM YTD mountain Arm Holdings stock. Vinh expects Arm to gain market share in the data center, networking and automotive sectors to support outsized growth. Arm is benefiting from its power efficiency and customization abilities, he said, which will further lend to the industry’s dependency on the company. Arm’s market share gains will be greatest within cloud infrastructure, where it’s expected to increase from 10% in 2022 to 28% by 2025, according to KeyBanc. Within the auto sector, Arm is expected to have 78% of market share by 2031. Another growth factor for the chip maker is customers’ increasing adoption of Arm’s latest generation v9 processor, which the analyst expects will increase royalty rates from 1.7% in full-year 2023 to 2.5% in full-year 2026. “We see higher adoption of Arm’s compute subsystems, which provide significant cost and time-to-market savings, which will drive meaningfully higher royalty rates (10% at the high end),” Vinh said. “We expect the opportunity for royalty rate expansion to be the most prominent within server and mobile applications.” — CNBC’s Michael Bloom contributed to this report.
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