Many portfolios already have Apple (AAPL) stock, and that’s fine. However, investors can also get indirect exposure to Apple’s smartphone market dominance, as well as to the artificial intelligence (AI) hardware market, by holding shares of Arm Holdings (ARM). I am bullish on ARM stock because the company is a crucial supplier to Apple and because a famous big-bank analytics firm called Arm Holdings stock a top AI pick.
Arm Holdings is a British semiconductor and software design company. I suspect that many U.S.-based stock traders never even heard of Arm until a few years ago, probably because it’s a foreign company.
Now, Arm Holdings is a force to be reckoned with in the American technology-hardware industry, and investors should pay attention and take this company seriously. I wouldn’t go so far as to say that there would be no Apple without Arm. However, the two companies are closely associated, and if you’re bullish about Apple, you really ought to take a look at ARM stock.
Arm Holdings Is a Consistent Earnings Beater
I don’t want to give the impression that Arm Holdings is overly dependent on Apple or any other company. Arm is a solid business in its own right, and the company’s earnings track record indicates that the company is in a good financial position. This supports my bullish stance on ARM stock because earnings beats are typically a sign of stability and growth for a company.
So far, Arm Holdings has beaten Wall Street’s consensus EPS estimates for four consecutive quarters. That’s not a long track record, but it’s a great start, you must admit.
The first quarter of Fiscal Year 2025 was particularly strong for Arm Holdings. The company’s revenue grew 39% year-over-year to $939 million, exceeding the analysts’ consensus projection of $906.5 million. Particularly impressive was Arm’s License revenue, which rose 72% year-over-year to $472 million.
Furthermore, Arm reported Q1 2025 adjusted earnings of $0.40 per share, comfortably exceeding Wall Street’s consensus forecast of $0.35 per share. If Arm can continue to surpass analysts’ expectations, it’s hard to imagine ARM stock failing to gain value over the next few quarters.
Arm Holdings Helps Bring AI Functionalities to New iPhones
Not long ago, Apple unveiled its new iPhone 16 models to the eager public. These next-generation smartphones will include Apple’s AI technology functionalities, known as Apple Intelligence. Apple turned to Arm Holdings to help provide the necessary hardware to power the iPhone 16’s AI features. This supports my bullish thesis about ARM stock because being a major supplier to Apple will certainly benefit Arm’s top and bottom lines.
Recently, Morgan Stanley (MS) analysts assigned ARM stock an Overweight rating and a $175 price target. Moreover, they chose Arm Holdings stock as a “Top Pick.”
Why did they call it a “Top Pick”? Among other factors, the Morgan Stanley analysts specifically cited Apple’s iPhone 16 launch. In particular, they pointed to Arm’s AI-enabled architecture, which will be used in the iPhone 16’s A18 processor.
Bear in mind we’re talking about Apple here, the undisputed heavyweight champion of U.S.-based smartphone designers. Apple is truly a kingmaker in the technology-hardware field. It’s a huge win for Arm Holdings to supply AI-enabled iPhone components to Apple, and of course, the Morgan Stanley analysts recognize this.
The iPhone accounts for nearly half of Apple’s revenue, so the stakes are sky-high with the company’s new iPhone release. Apple needs to show the public that Apple Intelligence functionalities are fast, robust, and reliable.
To support its power-intensive AI features, the iPhone 16 will rely on Arm Holdings’ latest V9 design architecture. Arm’s A18 chip for the new iPhone models will be able to handle complex AI tasks efficiently – or at least, that’s what the consumers will expect. The Morgan Stanley analysts also seem to expect a successful AI-enabled iPhone rollout; otherwise, they certainly wouldn’t have selected ARM stock as a “Top Pick.”
Is ARM Stock a Buy, According to Analysts?
On TipRanks, ARM comes in as a Moderate Buy based on 13 Buys, four Holds, and one Sell rating assigned by analysts in the past three months. The average Arm Holdings stock price target is $138.86, implying 0.57% downside risk.
If you’re wondering which analyst you should follow if you want to buy and sell ARM stock, the most profitable analyst covering the stock (on a one-year timeframe) is Matt Ramsay of TD Cowen, with an average return of 55.98% per rating and a 60% success rate.
Conclusion: Should You Consider ARM Stock?
So far, Arm Holdings has been an earnings beater for four consecutive quarters. Plus, the company’s License revenue data indicates that Arm is in growth mode from a financial standpoint. That’s important because I don’t want to give the impression that Arm Holdings is a fragile company that relies too much on its association with Apple.
At the same time, I don’t blame the Morgan Stanley analysts for citing Arm Holdings’ supplier partnership with Apple. It’s a huge win for Arm that simply can’t be overlooked. Consequently, I agree with the Morgan Stanley analysts that ARM stock is a “Top Pick,” and I would consider purchasing a few Arm Holdings shares today.
