Arm (ARM) Upgrade Highlights AI and Server CPU Expansion Potential

Arm Holdings plc (NASDAQ:ARM) is one of the AI Stocks Analysts Are Watching. On January 21, Susquehanna analyst Christopher Rolland upgraded the stock from Neutral to “Positive” and maintained a price target of $150. The firm sees the recent pullback as a buying opportunity driven by robust growth drivers, particularly AI silicon initiatives and server CPU expansion.

Susquehanna’s upgrade on ARM comes despite recent market concerns about higher memory prices impacting the Mobile and PC markets. Previously, these concerns had led to several competitor downgrades, pressuring ARM’s share price.

The firm views this sell-off as an opportunity, citing two company-changing initiatives as key catalysts behind the upgrade. These include the development of an AI XPI ASIC in partnership with SoftBank and Broadcom for OpenAI, as well as a custom sever CPU, which is likely for Meta, marking its first full-silicon offering and meaningful expansion of its data center addressable market.

Other positives working in favor of the company include the migration from v8 to v9 products, early volume ramp of high-royalty CSS-based Aps, continued server CPU share gains at hyperscalers, and higher royalty rates driven by doubling of core counts and adoption of DC CSS designs.

Susquehanna acknowledges that a royalty reset is coming for 2026 models due to memory-driven headwinds in Mobile and PC markets, it believes these challenges are "well known” and that the subdued sentiment doesn’t seem to align with upcoming catalysts.

As such, we argue that depressed investor/sell-side sentiment and the stock’s recent ~40% correction stand in stark juxtaposition with these important coming initiatives that we believe could accelerate growth and royalties well beyond Arm’s model’s ~10% royalty contribution today. These catalysts should spur shares well and underpin our upgrade from Neutral to Positive, while we reiterate our $150 price target (27.5x EV/sales).

Arm Holdings plc (NASDAQ:ARM) is a semiconductor and software design company that designs and manufactures semiconductor technology and other related products.

While we acknowledge the potential of ARM as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 10 AI Stocks on Market Radar and 10 Buzzing AI Stocks Analysts are Watching

Disclosure: None.