Shares of semiconductor architecture company Arm Holdings(NASDAQ: ARM) rallied again today, up another 5.4% as of 12:43 p.m. ET.
Arm had already seen a wave of analyst upgrades this week, but got even more positive news today, this time via a bullish initiation from analysts at Raymond James.
An AI uplift across end markets
Raymond James started coverage on Arm today, initiating the stock with a buy rating and a $160 price target.
The analysts are bullish on Arm due to what they see as widespread future adoption of the company's V9 architecture. This new architecture is optimized for neural processing in artificial intelligence (AI) applications, and carries a price tag that's twice the rate of the prior generation's architecture. So as AI permeates more end markets, Arm should benefit handsomely from V9 adoption.
Apple's iPhone and Mac chips use the Arm architecture, and analysts believe the new iPhone 16 contains V9 to power the iPhone's new Apple Intelligence services. Furthermore, Nvidia uses Arm for its Grace CPU, which accompanies Nvidia's Hopper and Blackwell GPUs in its "superchip" reference designs for AI data center servers.
Raymond James sees Arm making bigger inroads into the server market, especially low-power edge AI servers, where Arm has traditionally had lower penetration. As the cherry on top, the analysts also predict Arm will eventually release a license for AI accelerators themselves. Currently, Arm is only used in CPUs and not accelerators, so that could lead to material upside.
Much enthusiasm is already in the price
Despite all this potential growth, Raymond James' target price is only $160, a mere 15% above the stock price to start the day and 8.2% above the price as of this writing.
That's likely a function of Arm already being an expensive stock, at 89 times earnings estimates for 2025 heading into today. So while Arm's outlook is bullish, there isn't much margin of safety in buying shares here.
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Billy Duberstein and/or his clients have positions in Apple. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
