Arm Stock Is Rising. The Chip Designer Has Tripled Its Market, This Analyst Says.

Arm Holdings listed its stock in 2023. (Michael M. Santiago/Getty Images)

Shares of Arm Holdings were climbing Monday after one Wall Street analyst counseled investors to buy the stock.

Jay Goldberg of Seaport Research Partners initiated coverage of Arm with a Buy rating and a $150 price target in a research note Monday. The British chip designer, which receives both licensing revenue and per-chip royalties, has been reinvigorated since its 2023 initial public offering and has expanded the market it can serve, Goldberg argued

Arm stock was up 3% to $142.65 in afternoon trading. Shares are up 16% this year, outpacing the Nasdaq Composite, which has jumped 11%.

Once reliant on licensing technology for mobile phones, Arm has diversified widely, penetrating both the data-center and automotive categories and tripling its total addressable market, Goldberg wrote.

Artificial intelligence has been a boon in that respect. Arm content is found on almost every Nvidia platform, and Arm technology powers the data-center-focused Nvidia Grace central processing unit, or CPU, Goldberg pointed out.

In an interview last month with CNBC, CEO Rene Haas projected that Arm’s market share in data-center CPUs would reach about 50% by the end of the year. Less than a decade ago, Goldberg said, Arm had none of that market.

But Arm isn’t just competing for business from the wealthiest hyperscalers.

“Three years ago, the company introduced a number of changes to its licensing terms which allowed smaller companies and start-ups to more readily access Arm IP,” Goldberg wrote. “This has shored up the bottom end of the market.”

Seaport projected the average royalty rate Arm claims on its chips will climb to 20 cents per chip in 2027 from 11 cents last year.

Despite the Buy rating, Seaport’s target price of $150 implies just a 5% return on Friday’s closing price of $138.50.

Write to Nate Wolf at nate.wolf@barrons.com