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Shares of UK-based chip designer Arm Holdings (NASDAQ:) experienced a nearly 2% drop on Wednesday, despite an overweight rating from KeyBanc Capital Markets. The drop came amidst predictions of an increased industry reliance on Arm’s intellectual property (IP), including its Armv9 architecture, due to the end of Moore’s Law and rising chip complexity.
Analyst John Vinh, leading the KeyBanc team, anticipates that escalating computing requirements across sectors such as mobile, data center, auto, and IoT will boost dependence on Arm IP. This is expected to lead to market share gains and royalty rate expansion for the company.
KeyBanc analysts have set a $65 price target for Arm, suggesting a near 30% upside. They also forecast that Arm’s royalty rates will rise to 2.5% by fiscal 2026 from 1.7% in fiscal 2023. This projection is based on the expectation of heightened licensing revenue from tech giants such as Apple (NASDAQ:), Nvidia (NASDAQ:), and Qualcomm (NASDAQ:).
Despite Wednesday’s share drop, Wall Street analysts maintain a strong buy consensus rating for Arm. This consensus is based on 12 buys, four holds, and zero sells in the past three months. The average Arm price target sits at $62.21 per share, indicating a 20.8% upside potential.
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