Apple (NASDAQ:AAPL) launched its iPhone 16 lineup earlier this week, aiming to tap into the AI revolution. This development could not only boost Apple’s market position but also have positive implications for Arm Holdings (NASDAQ:ARM).
That at least is the opinion of Morgan Stanley’s Lee Simpson, who says the global leader in silicon IP is “often overlooked as an AI beneficiary.”
“Following the launch of the iPhone 16 on Monday and the indicated utilisation of Arm v9 architecture in the A18 processor, Arm remains our favoured play on the emerging Edge AI opportunity,” Simpson went on to say. “We expect mobile to drive initial upside, followed by infrastructure and autos.”
Simpson views the increasing adoption of custom silicon based on Arm architecture as a significant factor in driving royalty growth, including a potential rise in royalty rates over the next 2-3 years. Currently, custom silicon royalties are primarily driven by cloud AI, but this is expected to largely transition to mobile, beginning around the March quarter (FY4Q25).
The analyst anticipates that the increasing adoption of v9 cores, along with a transition toward more custom silicon, will be key drivers in “mobile growth.” Additionally, the successful rollout of new CPU extensions—particularly the v9.2 scalable matrix extensions – highlights Arm’s “growing importance” in mobile, even as the use of NPUs rises with the development of mobile AI.
Additionally, Simpson believes the company reached a trough in licensing during Q2/Q3, but anticipates an improvement in Q4, boosted in part by the renewal of a licensing agreement with at least one major ATA (Arm Total Access) client.
Another factor standing in Arm’s stead vs. other semi names is the fact that thanks to its UK-based IP portfolio, over the near-to-medium term, it is unlikely to be significantly impacted by potential new China restrictions.
All in all, seeing the semi giant as a ‘Top Pick,’ Simpson rates ARM shares an Overweight (i.e., Buy), along with a $175 price target. If the target is achieved, the shares could provide a ~25% potential return of over the next 12 months. (To watch Simpson’s track record, click here)
Alongside Simpson, 13 other analysts are optimistic about ARM stock, assigning Buy ratings. With 4 additional Holds and 1 Sell, the overall consensus rating is a Moderate Buy. However, the $140.27 average target indicates the shares – which are already up by 85% year-to-date – have nowhere left to run right now. (See ARM stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
