While chips based on Arm Holdings' (NASDAQ: ARM) technology dominate multiple markets, including smartphones, it's the company's opportunity to expand its presence in the data center and PC market that has analysts at KeyBanc excited.
KeyBanc reiterated its "overweight" rating on Arm to kick off the week while boosting its price target from $120 to $135. From its current price, the new target suggests a 6.5% upside over the next 12 months or so. Shares of Arm have surged this year, and KeyBanc sees the rally continuing.
Gunning for the data center and PC
In the data center, x86 chips from Intel and Advanced Micro Devices dominate the landscape. The situation is starting to change, though, with artificial intelligence (AI) being a key driver. GPU giant Nvidia is pushing its so-called "superchips," which combine its powerful GPU cores and Arm CPU cores tuned for data center workloads. KeyBanc expects Nvidia's GB200 chip, announced in March, to boost Arm's presence in the data center market.
PCs are another opportunity. Apple made the switch to custom Arm processors for its Mac computers, and now Microsoft and Qualcomm are looking to shake things up on the Windows side. Qualcomm's Arm-based Elite X PC chips are coming later this year, and early benchmarks look promising.
The tricky thing about Arm PCs is that they must run most standard Windows programs without issue to convince consumers that they're a viable option. Apple uses an emulation layer for its Arm-based Macs, and it remains to be seen how well a similar setup will work on Windows. There is some traction getting developers to build applications specifically for Arm: Alphabet's Google recently launched a version of its Chrome web browser optimized for Arm-based systems.
Is Arm stock a buy?
While Arm will likely win market share in both the data center and PC markets, the stock has become prohibitively expensive. Trading for well over 100 times forward earnings, Arm stock looks incredibly risky despite the company's growth potential.
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