Arm StocksJump 5% as Analysts Downplay Smartphone Demand Issues

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Arm stock rose 5% following fiscal third-quarter results that surpassed analyst expectations.
The company reported strong royalty revenue driven by high-end smartphone chips.
Analysts believe concerns over slowing smartphone demand may be overstated.
Arm’s licensing revenue came in below expectations, raising concerns about future growth.
Jefferies maintained a Buy rating on Arm, lowering its price target to $170 from $205.

Arm Holdings plc’s stock surged 5% on Thursday following the release of its fiscal third-quarter results, which exceeded analysts’ expectations. The British chip designer, majority-owned by SoftBank, reported strong royalty revenue. Analysts indicated that concerns about slowing smartphone demand might not be as significant as previously thought.

Arm Holdings plc American Depositary Shares, ARM

While the company’s earnings showed strength, particularly from high-end smartphone chips, some analysts highlighted potential challenges ahead. Arm’s success in securing royalty revenue from Armv9 and CSS technology contributed to the positive outlook. However, concerns about the licensing segment of Arm’s business remained after weaker-than-expected results.

Arm Stock Strong Earnings Despite Mixed Results

Arm’s earnings report revealed that while the company posted record revenues, its licensing business faced difficulties. The licensing segment, which is a key part of Arm’s business model, came in lower than expected. As Arm designs and sells processor blueprints to major tech firms, the underperformance in licensing raised investor concerns.

Despite these challenges, Arm saw growth in royalty revenue, driven largely by demand for smartphone chips. High-end phones using Arm’s latest chip technology showed continued strength. Still, the lower-than-expected licensing income raised questions about the company’s ability to capitalize on the growing demand for custom chips, particularly in AI.

Analysts Maintain Positive Outlook Despite Uncertainty

Several analysts have expressed confidence in Arm’s long-term growth prospects. Jefferies maintained a Buy rating on the stock but lowered its price target to $170, citing potential challenges from memory price pressures. The firm believes that growth from data centers and premium phone adoption could offset risks posed by smartphone volumes.

Needham also kept a Hold rating, with an emphasis on SoftBank’s AI investments, which could benefit Arm’s performance. The firm projects a 20% growth rate for the fiscal year 2027, with acceleration possible in fiscal 2028 due to custom silicon initiatives. Morgan Stanley remains optimistic as well, forecasting Q4 revenue of $1.42 billion, slightly above consensus.

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