Arm Holdings PLC (NASDAQ:ARM)’s record quarterly revenues of $824 million (£652 million) caught the attention of Citi Bank analysts today, who said there were multiple drivers for the result, but “AI acceleration stands out”.
In a research note with a heavily shoehorned-in pun titled ‘rAIse your Arm agAIn’, Citi analysts wrote: “Arm delivered a very impressive beat and raise, even by already high semiconductor industry standards.
“Strength in both royalties and licensing drove the upside, with the former up on increased Armv9 volumes at higher royalty rates and an improving cycle and the latter up on accelerating AI adoption and broadening customer needs for Arm technology.
“The drivers and direction of travel for Arm are as outlined at the time of its IPO, but the timing and slope is sooner and steeper due to AI.”
In Arm’s earnings call, the group said that AI and large-language applications will drive demand for Arm’s CPU designs, with global tech players including Nvidia Corporation, Dell Technologies and Hewlett Packard Enterprises incorporating the Arm-based GH200 Grace Hopper Superchip.
In the core smartphone space, Google, Samsung, Vivo and Xiaomi all have announced new Arm-based smartphones that demonstrate generative AI and LLM capabilities.
Citi expects Arm’s sales trends to remain robust into 2025 and 2026, resulting in incremental revenue estimate raises of 5%, 5% and 8% for 2024, 25 and 26 respectively.
Citi raised its Arm share price target from $86 to $115.
Given Arm’s blinder of a 60% rally on Thursday, this target presents little upside to the current $113.89 share price.