Arm Holdings (NASDAQ:ARM) was initiated with an Overweight rating and $70 per share price target at Wells Fargo in a research note Monday.
The investment bank's analysts said Arm has been the "leading innovator in RISC-based compute since its founding in 1990 as a JV involving Acorn & Apple (NASDAQ:AAPL)," and they believe it can continue the momentum well into the future by taking compute share.
The firm views Arm as one of the "best-positioned companies within the $550 billion global semiconductor industry."
"Beginning at a very high level, the company is well positioned to benefit from: 1) captive chip designs; 2) China developing a domestic chip industry; 3) the general mkt shift from X86 to RISC-based compute IP; 4) a more holistic compute mkt opportunity associated with compute resources unique to AI workloads; & 5) increasing mkt adoption of licensable 3rd-party IP for chip design," the analysts wrote.
They added: "At an idiosyncratic level, Arm's top-line growth & margins should benefit from: 1) higher royalty rates Arm charges for newer-generation cores (e.g. Armv9); & 2) the conversion of customer licensing from up-front licensing to time-based licensing."
Overall, Wells Fargo believes the increased predictability and visibility into licensing revenue should lead to higher valuation multiples for Arm shares.