Arm holds advantage across '3 tectonic shifts' in computing: Evercore

Arm Holdings (NASDAQ:ARM) holds a key position across "three tectonic shifts" in computing, according to Evercore ISI.

These shifts include AI workloads in smartphones, in the datacenter as CPUs move on from x86 infrastructure to Arm and in Internet of things devices.

As such, Evercore initiated coverage on Arm with an Outperform rating and a price target of $156. Evercore also initiated coverage of additional semiconductor stocks this week.

"ARM has shown significant traction in hyperscaler servers amid a focus by the likes of Microsoft (MSFT), Amazon (AMZN) and Google (GOOG)(GOOGL) on price-performance and power efficiency," said Evercore's Mark Lipacis, in a note.

"In turn, unit share has increased from near 0% in 2018 to approximately 5% in 2023," he added. "And with recent announcements including Google’s Axion processor, and Microsoft’s Cobalt 100 chip, momentum is only beginning to reach its stride. Moving forward, we would expect Arm to reach 40-50% server CPU market share over the next 10 years."

However, some analysts find that Arm is currently overpriced.

"Despite accelerating key metrics, including revenue, RPO and average contract value, Arm’s valuation poses significant risks, given that it is trading at exuberant levels," said Beth Kindig, CEO for the I/O fund and a Seeking Alpha contributor.

Arm has a Hold rating from Seeking Alpha analysts, but a Buy rating from Wall Street analysts.