Wells Fargo Initiates Coverage on Arm Holdings at Overweight, Shares Surge 5%

Analysts at Wells Fargo started coverage on Arm Holdings (NASDAQ:ARM) with an Overweight rating and a price target of $70.00. The analysts’ commentary underscores Arm's strong positioning within the $550 billion global semiconductor industry. As a consequence, shares gained more than 5% intra-day today.

They identify several key advantages for Arm, including the company's engagement in captive chip designs and its potential to benefit from China's development of a domestic chip industry. Another significant aspect is the market's general shift from X86 to RISC-based compute IP, alongside the expanding market opportunity in compute resources specific to AI workloads, and the increasing adoption of licensable third-party IP for chip design.

On a more specific level, the analysts pointed out that Arm's revenue growth and margins are set to benefit from higher royalty rates charged for newer-generation cores, such as Armv9, and from transitioning customer licensing from up-front to time-based models. This transition is expected to increase predictability and visibility into licensing revenue, potentially leading to higher valuation multiples for Arm shares, mirroring the re-rating benefits that EDA stocks have experienced over the past decade and more.