On Thursday, Goldman Sachs updated its outlook on Arm Holdings (NASDAQ: NASDAQ:ARM), increasing the stock's price target to $95.00, up from the previous $95.00, while reiterating a Buy rating. The adjustment comes in response to the company's recent performance, which exceeded expectations due to improved licensing revenue and higher royalty rates.
Arm Holdings' recent financial success has been attributed to the transition from Armv8 to Armv9 architectures, the latter of which commands approximately double the royalty rate. This shift is in line with Goldman Sachs' original analysis that projected growth in the company's revenue from smartphones through increased royalty rates. Additionally, the firm anticipates that Arm will expand its influence in sectors where it is currently underrepresented, such as Data Center, Automotive, and the Internet of Things (IoT).
The investment firm is particularly optimistic about the prospects for Arm in the Data Center market, citing the company's energy-efficient technology and the adoption of its processors by major industry players, including Amazon (NASDAQ:AMZN) with its Graviton CPU, Microsoft (NASDAQ:MSFT) with Cobalt CPU, and Nvidia (NASDAQ:NVDA) with Grace CPU. These developments are expected to drive further growth for Arm Holdings.
Reflecting the anticipated increase in licensing revenue and the rapid expansion of royalty rates, Goldman Sachs has revised its non-GAAP earnings per share (EPS) estimates for Arm Holdings. The firm's forecast for calendar years 2024 and 2025 has increased by 25% and 17% to $1.48 and $2.16 respectively.
The new price target of $95.00 represents a significant uplift from the previous target of $65.00, indicating a strong conviction in the growth trajectory of Arm Holdings and its financial prospects in the coming year.
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