Arm shares jump 7% on HSBC upgrade as AI demand boosts outlook

Arm Holdings Plc shares surged on Friday after a major analyst upgrade and growing optimism around its role in the artificial intelligence (AI) chip ecosystem fueled investor interest.

The stock gained 7% to its intraday high, extending its recent rally as analysts highlighted the company’s evolving business model and stronger earnings potential tied to AI-driven demand.

HSBC upgrade highlights AI-driven transformation

The rally was largely triggered by HSBC’s decision to double-upgrade the stock to Buy from Reduce, while sharply increasing its price target to $205 from $90.

Analyst Frank Lee pointed to Arm’s growing relevance in AI infrastructure, describing the company’s opportunity as “game-changing.”

According to HSBC, Arm is shifting from a smartphone-focused licensing business into a key supplier of CPU architecture for AI servers.

The firm said the company is “firmly in the middle” of this transition and “remains undervalued by the market.”

This shift is being driven by increased adoption of Arm’s newer technologies, particularly its v9 architecture and Neoverse compute platforms, by large cloud providers.

These platforms are designed for high-performance computing environments, including AI data centers, and are expected to significantly increase the royalties Arm earns per chip.

New architecture boosts royalties and growth outlook

Further supporting the bullish sentiment, Citi analyst Andrew Gardiner reiterated his Buy rating on the stock, with a price target of $190.

Gardiner emphasized the financial impact of Arm’s latest technology upgrades, noting that the v9 architecture generates roughly “2x the royalty rate” of older versions.

As adoption increases, the company’s earnings per chip are rising.

This trend has already translated into stronger financial performance.

Arm reported a 27% increase in royalty revenue, reaching a record $737 million.

Licensing revenue also climbed 25% to $505 million in the latest quarter, signaling strong future demand since licensing agreements typically precede chip production by several years.

Gardiner highlighted that the shift toward newer, higher-margin technologies is a key driver behind the company’s improving outlook.

Data center demand outpaces traditional mobile business

While Arm has historically been dominant in smartphone processors, its fastest-growing segment is now data centers.

Gardiner noted that “data center royalty revenue has grown more than 100% year-on-year.”

Major technology companies including Amazon, Google, and Microsoft are increasingly designing custom AI chips using Arm’s architecture.

This trend is expected to reshape Arm’s revenue mix, with data centers potentially becoming its largest business segment in the coming years.

Morgan Stanley also maintained a positive stance on the stock, reiterating an Overweight rating with a $135 price target.

The firm pointed to ongoing developments in Arm’s chiplet strategy and potential new product disclosures as near-term catalysts.

From a technical perspective, the stock is showing strong momentum.

Shares are trading above key moving averages, with indicators such as the RSI at 60.45 and a bullish MACD configuration suggesting improving trend strength without entering overbought territory.

Despite the recent rally, analysts remain constructive on the stock’s outlook.

According to aggregated ratings, Arm is currently viewed as a Strong Buy, supported by 19 Buy and three Hold recommendations, with an average 12-month price target implying 23% upside.

As AI demand continues to accelerate, Arm’s expanding role in data center infrastructure is increasingly seen as central to its long-term growth story.