Arm Holdings (ARM) PT Raised to $72 at Bernstein, Remains Underperform Rated

Bernstein analyst Sara Russo raised the price target on Arm Holdings (NASDAQ: ARM) to $72.00 (from $46.00) while maintaining a Underperform rating.

The analyst comments "As we look towards the end of FY24, there are a number of areas to look at. AI-related demand has driven licensing, although Arm is still cautious on outlook for FY25 and beyond. AFA and ATA have proven successful, but customer numbers are slowing in growth, and we shift focus to ACV as a key metric for future growth. China remains a concern, still at an elevated share of revenues (25% vs. 20% last quarter) and commentary that Arm still anticipates it to decline as a share of revenue. Next quarter results should offer more details on market share, royalty rate progress as we reach Arm’s first EOY as a newly public company. Per results and guidance, we raise our topline for FY24 and beyond. This is driven by increased licensing revenues in recent years, but also an increase to our mobile application processor royalties as v9 penetration is quickly gaining momentum. We now expect royalties to reach 5% by FY26 and 7% by end of the decade (vs. 5% previously). We still expect R&D and SG&A to return to pre-Softbank levels (slightly below consensus), with adj. EBIT margin levels of close to 50% by FY27. We shift our methodology to P/E, in line with the rest of our coverage. We value Arm at a FY26 P/E of 40x, at the upper end of key peers Synopsis, Cadence and Nvidia. This increases our TP to US$ 72. We reiterate our Underperform rating."

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