Arm Holdings Analysts Stay Bullish With Licensing Gains Overshadowing Royalty Concerns

BMO Capital analyst Ambrish Srivastava reiterated a Market Perform rating on Arm Holdings Plc (NASDAQ: ARM) with a price target of $60.

Arm reported a robust set of second-quarter results and guidance, showcasing its strong business model; the undergoing transition, particularly on the licensing side; its share gains and growing royalty rates.

But, based on the inbounds and the multitudes of questions on the group call-back, the second half fiscal year guidance for royalty rates was a point everybody was trying to better reconcile in the backdrop of the results and guidance from chip companies. 

The analyst projected third-quarter revenue of $760 million (prior $777 million) and EPS of $0.25 (prior $0.28).

KeyBanc Capital Markets analyst John Vinh remained Overweight with a price target of $65.

Arm Holdings posted strong second-quarter results and guided the third quarter slightly lower due to lower mobile royalties. While strength in cloud and auto drove upside to second quarter royalties, the third quarter mobile outlook was lower due to smartphone weakness.

Despite a lower-than-expected view on royalties, this would likely be more than offset by continued strength in licensing, with robust licensing growth probably sustained in the second half.

Despite a lower royalty outlook, the analyst was encouraged by strength in licensing, which supported his view Arm Holdings's compute IP would increasingly become more critical to the ecosystem.

The analyst projects third-quarter revenue of $760.6 million (prior $776.2 million) and EPS of $0.25 (prior $0.28).

Read Also: Chipmaker Arm Holdings Reports Earnings For The First Time Since IPO

Mizuho Securities analyst Vijay Rakesh reiterated a Buy with a price target of $62.

Arm Holdings reported a good second quarter but guided the third-quarter top line down 6% Q/Q, which is likely given the soft Consumer, Industrial, and IoT down 10-15% Q/Q. 

Rakesh sees Arm Holdings well positioned as a global leader in semiconductor IP licensing.

Arm Holdings is driving a sticky expanding ecosystem at scale, shipping ~35 billion units per year, with 60% of all semiconductor IP on Arm Holdings, while driving lower platform Total cost of ownership (TCO) focusing on power, flexibility, and optimized workloads.

The analyst projected third-quarter revenue of $760 million (prior $776 million) and EPS of $0.28 (prior $0.28).

Goldman Sachs analyst Toshiya Hari reiterated a Buy based on bottoming units and a positive inflection in royalty rates.

ARM Price Action: Arm Holdings shares traded lower by 6.21% at $51.02 on the last check Thursday.

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