Last Update 07 Mar 26

Fair value Increased 0.17%

ARM: Physical AI And Data Center CPUs Will Drive Future Upside

Analysts have nudged their average price target for Arm higher to $148.09 from $147.83, reflecting slightly faster assumed revenue growth and AI driven CPU demand in data centers, partially tempered by more conservative profit margin and P/E assumptions.

Analyst Commentary

Recent Street research on Arm shows a split between analysts who see more upside tied to AI CPU demand and those who are tightening assumptions around growth, margins and valuation multiples.

Bullish Takeaways

Bullish analysts are leaning into the view that CPUs will matter more as AI workloads shift toward inference in data centers. They see this as supportive for Arm's long term CPU share opportunity and, in turn, its revenue potential.
Some recent target increases, including a lift to US$140 at a large global bank, reflect a willingness to underwrite Arm's role in AI infrastructure as a key driver for the company's growth story rather than treating it as a niche add on.
Upgrades from previously cautious firms signal growing confidence that earlier concerns around end markets like smartphones may have been too harsh. If that view is correct, it could give Arm more room to execute against its license and royalty model.
Supportive research continues to frame pullbacks in the share price as opportunities for long term buyers who are comfortable with near term volatility in exchange for exposure to Arm's CPU ecosystem across cloud and edge applications.

Bearish Takeaways

Bearish analysts have trimmed price targets across multiple firms, often by US$5 to US$35, indicating more cautious assumptions around Arm's ability to translate AI enthusiasm into sustained revenue and profit growth.
Several target cuts highlight concerns around valuation, with Arm's P/E and other multiples seen as demanding relative to what these analysts view as execution risk around AI, data center and smartphone demand.
Some research points to the risk that slower royalty growth, pressure on margins or weaker than expected unit volumes could make current targets hard to achieve, particularly if licensing activity does not stay robust.
Analysts in the cautious camp also flag the possibility that competitive pressures or changes in customer roadmaps could weigh on Arm's medium term growth profile. In their view, this justifies more conservative price targets.

What's in the News

Dell, Lenovo and other PC makers are reported to be working with Nvidia on laptops using an Arm based Nvidia MediaTek SoC, with potential launch timing in the first half of 2026, which would extend Arm CPU designs further into Windows PC devices (The Wall Street Journal).
Nvidia is reported to be targeting a 2026 launch for a Windows on Arm notebook, reinforcing interest in Arm based platforms for future PC form factors and AI centric workloads (DigiTimes).
Arm launched a Physical AI division, reorganizing the company to focus on expanding its presence in robotics at a time when humanoid and other physical robots are getting increased attention at industry events such as CES (Reuters).
Arm Holdings CEO Rene Haas described worries that AI could hurt software companies as "micro hysteria," signaling a more optimistic management view on how AI and software business models can coexist (Financial Times).
Arrcus, Fujitsu and 1Finity announced a collaboration around the Arm based FUJITSU MONAKA CPU to support secure, energy efficient infrastructure for distributed AI workloads at the edge, including use cases in Physical AI such as smart factories and robotics.

Valuation Changes

Fair Value: The average fair value estimate has risen slightly from $147.83 to $148.09.
Discount Rate: The assumed discount rate has moved up modestly from 11.27% to 11.40%, indicating a slightly higher required return.
Revenue Growth: Modeled long term revenue growth has edged up from 20.83% to 21.37%.
Net Profit Margin: The assumed net profit margin has eased from 32.55% to 32.11%.
Future P/E: The forward P/E multiple has ticked up from 81.86x to 82.30x.

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Key Takeaways

Custom silicon adoption and rising royalty rates are driving substantial royalty and earnings growth, while premium IP boosts per-chip monetization.
Broadening AI, IoT, and edge market reach, plus a large developer ecosystem, ensures recurring revenue, earnings stability, and sustainable margin expansion.
Moving into new compute segments and dependence on flagship smartphones heighten execution risks, market exposure, and pressures on margins amid rising R&D costs and competitive threats.

Catalysts

About Arm Holdings

Arm Holdings plc architects, develops, and licenses central processing unit products and related technologies for semiconductor companies and original equipment manufacturers.What are the underlying business or industry changes driving this perspective?

Arm's accelerating penetration in AI data centers-driven by hyperscalers shifting to custom silicon featuring Arm Neoverse CPUs-positions the company to capture significant royalty revenue growth, especially as their market share soars from ~18% to nearly 50% in a year.
A surge in demand for connected devices and intelligent edge computing (IoT, automotive, wearables) continues to expand Arm's addressable market. New CSS and v9 platform rollouts with higher royalty rates underpin long-term royalty and top-line revenue growth as AI and edge adoption broadens.
Ongoing premiumization of Arm's IP-evidenced by rising royalty rates from v8 (~2.5%–3%), to v9 (~5%), to CSS (now exceeding 10%)-is increasing per-chip monetization, setting up strong net margin and earnings gains as customers adopt next-generation solutions.
Arm's robust developer and partner ecosystem (22 million+ developers, endorsements from players like Apple, Samsung, NVIDIA, and AWS) forms a sticky, software-enabled platform that drives recurring licensing/royalty streams and enhances forward visibility for revenue and earnings stability.
Expanding investment in R&D to accelerate new product categories (compute subsystems, chiplets, full-end solutions, AI-specific IP like Ethos and Zena) positions Arm to further diversify its revenue streams and outpace secular industry demand for power-efficient, scalable compute, supporting sustainable earnings and margin expansion.

Arm Holdings Earnings and Revenue Growth

Arm Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Arm Holdings's revenue will grow by 21.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 17.0% today to 30.6% in 3 years time.
Analysts expect earnings to reach $2.3 billion (and earnings per share of $2.12) by about September 2028, up from $699.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.5 billion in earnings, and the most bearish expecting $1.6 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 99.0x on those 2028 earnings, down from 213.3x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to grow by 0.76% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.69%, as per the Simply Wall St company report.

Arm Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company's long-term plan to move "beyond the current platform into additional compute to subsystems, chiplets and potentially full-end solutions" introduces significant execution risk and complexity, particularly in segments like ASICs where others are struggling; such missteps could increase R&D costs, dilute focus, and negatively impact operating margins and net earnings.
Heavy reliance on "flagship smartphones" for accelerated royalty growth exposes Arm to risk from a potentially saturated smartphone market and any slowdown in premium device demand, which could limit revenue expansion and compress margins if diversification efforts in other verticals underperform.
The company is accelerating R&D investment to support new products and higher royalty rates, but this uptick in operating expenses-if not matched by proportional profitable revenue growth-may constrain future earnings and pressure margins.
Potential geopolitical challenges persist in China, which now constitutes over 21% of quarterly revenue; any escalation in U.S.-China tech trade tensions or changes in export controls could limit Arm's access to this large market and reduce future sales volumes.
Growing vertical integration and in-house silicon development by hyperscalers and major customers (e.g., Google, Amazon, Apple) might shrink the external licensing TAM and erode Arm's customer base, impacting recurring royalty streams and long-term revenue visibility.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $152.591 for Arm Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $210.0, and the most bearish reporting a price target of just $80.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.4 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 99.0x, assuming you use a discount rate of 10.7%.
Given the current share price of $140.8, the analyst price target of $152.59 is 7.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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