Bank of America raised its price objective on Arm Holdings after the chip-design company posted a stronger March quarter, but the firm stopped short of turning more bullish on the stock as investors continue to price in a larger artificial-intelligence opportunity.
In the Bank of America note, analyst Vivek Arya reiterated a Neutral rating on Arm and raised the firm’s price objective to $245 from $180. The new target implies about 3.2% upside from the stock’s listed price of $237.30 in the note. Bank of America said Arm’s agentic AI CPU opportunity in both intellectual property and chiplets remains on track, though much of that opportunity may already be reflected in the company’s valuation.
Arm’s latest quarter gave investors more support for the long-term AI story, especially as demand for data center and AI-related computing continues to rise. The company reported March-quarter revenue of $1.49 billion, which was above Bank of America’s $1.47 billion estimate and Street expectations of $1.47 billion in the note. Non-GAAP diluted EPS came in at 60 cents, above Bank of America’s 58-cent estimate and Street expectations of 58 cents.
Arm Holding’s AI story continues to build
Bank of America said Arm’s March quarter was in line with modestly better than expected, driven by continued share and content gains in AI and data center, partly offset by near-term smartphone weakness. The firm pointed to Arm’s positioning across agentic CPUs, including key compute subsystem products and a chiplet opportunity tied to large AI customers.
The AI and data center strengths showed up in the company’s numbers. In the Bank of America note, the firm said data center revenue rose more than 100% year over year in the March quarter. It also said Arm reached about 50% share across cloud servers, inclusive of CPUs, switches, and network interface cards.
More Semiconductors
- Morgan Stanley raises price targets across semiconductor sector
- Cathie Wood sells another $15.6M of surging semiconductor stock
- Analysts rerate Taiwan Semiconductor stock after earnings
The firm said royalty content gains, moving from about 50 cents per core to $1 per core, should continue through fiscal 2027, helped by more cores per chip and broader adoption of Arm-based designs.
Bank of America also said Arm’s full silicon and chiplet opportunity for artificial general intelligence could contribute more than $8 billion to $10 billion in sales by fiscal 2031. Arm’s own view appears higher, with the note saying management sees a $15 billion opportunity and more than $9 of EPS power over that longer-term horizon.
The forecast comes with a catch
The problem for investors is that Bank of America already sees a lot of that optimism built into the stock. The firm said Arm’s agentic CPU ramp is generally priced in, which helps explain why the price target moved higher while the rating stayed Neutral.
Bank of America now models non-GAAP EPS of $2.07 for fiscal 2027, $2.84 for fiscal 2028, and $3.77 for fiscal 2029. Those estimates were raised from the firm’s prior outlook, with the biggest change coming in fiscal 2028 and fiscal 2029 as Arm’s AI and chiplet opportunities start to carry more weight.
The valuation still leaves limited room for error. Bank of America said its $245 price objective is based on 69 times its calendar 2028 non-GAAP EPS estimate. The firm noted that the multiple sits within Arm’s historical trading range of 35 times to 92 times, while also reflecting the company’s transition toward a mixed intellectual property and chip business.
Supply limits could cap near-term upside
Bank of America said demand for Arm’s AGI CPU opportunity in fiscal 2027 and fiscal 2028 has doubled over the last six weeks to about $2 billion from $1 billion. That level of demand could support the bullish case for Arm, especially as AI infrastructure spending continues to broaden beyond GPUs.
The firm said limited supply availability across wafers, substrates, memory, packaging, and other inputs is keeping a lid on near-term upside. Management also maintained its older $1 billion near-term royalty and chip outlook, despite the sharp increase in potential demand highlighted in the note.
Bank of America said Arm continues to expect 15% AGI CPU market share by fiscal 2031. Still, the firm believes that the target could be aggressive given competition from x86 and custom Arm-based offerings. Bank of America models a more realistic 5% to 7% share over time, partly because key potential customers such as Meta, OpenAI, and others already have multi-sourcing agreements across CPU vendors.
Arm’s long-term opportunity faces a valuation test
Bank of America still sees a meaningful opportunity for Arm as AI demand expands, data center content grows, and the company builds toward a larger role in custom silicon. The firm’s raised estimates and higher price target show that Arm’s growth profile has improved since the prior forecast.
The Neutral rating reflects a more cautious view of how much of that growth investors can still capture from here. In the Bank of America note, the firm said Arm’s AI CPU ramp is on track, but its valuation, supply constraints, and ambitious long-term share assumptions leave less room for the stock to surprise to the upside.
