Investing.com -- William Blair analysts initiated research coverage on Arm Holdings ADR (NASDAQ:ARM) with an Outperform rating, voicing confidence in the company's potential for significant earnings per share (EPS) and stock price growth over the coming years.
The firm highlighted Arm's multiple growth tailwinds, including “1) higher Average Selling Prices (ASPs) driven by improved monetization and higher value IP; 2) share gains in newer markets like data center; 3) tailwinds from AI driving higher demand for overall compute; and 4) a new upgrade cycle in mobile/PCs.”
Arm's stock trades at a premium compared to its peers, but William Blair justifies this with the company's promising growth prospects, which are anticipated to become more evident in the 2026 and 2027 financial forecasts.
The firm's discounted cash flow analysis suggests approximately 35% upside potential for Arm's stock, considering sustained revenue growth and improving profitability over the next decade. Arm's majority ownership by SoftBank (TYO:9984), with CEO Masayoshi Son's reluctance to sell shares, contributes to the stock's scarcity value, analysts note.
Meanwhile, they point out that Arm is also gaining ground in the data center market, with tech giants like Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN) developing their own Arm-based processors. This shift, driven by the need for AI computing, positions Arm for substantial growth as data centers expand and incorporate these chips at scale.
Separately, William Blair has also assigned an Outperform rating to Broadcom (NASDAQ:AVGO), recognizing the company's strategic expansion into the software sector to mitigate the cyclical nature of the semiconductor market.
Broadcom is poised for continued growth, fueled by AI-driven demand in networking and custom chip segments, as well as the shift to subscription-based offerings in its VMware (NYSE:VMW) business.
The firm notes that approximately two-thirds of VMware customers have transitioned to subscriptions, a significant increase from 30% prior to the acquisition.
Furthermore, analysts point out that AVGO stock is trading at a price-to-earnings ratio of 26x and an enterprise value to free cash flow ratio of 22x their 2025 estimates, which is slightly below the median for its peer group.
“We see room for multiple expansion as the sustainability of growth in networking, customer AI chips, and software becomes clearer,” analysts wrote.
“In addition, we view Broadcom as an execution machine, which heightens the chances of upside to earnings. Our DCF analysis supports our view that there is upside of roughly 30% to the current stock price,” they added.