Arm coverage initiation: Dropping in on the wave. Buy, $59 Target Price

We initiate coverage on Arm with a Buy rating and a $59 target price.

Our team is ideally positioned to help, having covered ARM for more than 15 years, uninterrupted, before the Softbank ownership, and through it as well, and having the most comprehensive coverage of the ARM ecosystem today, from manufacturing to end-products, and across all the technology infrastructure, from the datacenter, through networks, down to smartphones and cars.

Arm’s fundamentals have not changed in the last 7 years: The company rides growth in semiconductor content across all end markets, driving up adoption of its IP. We have a positive view on the stock into the IPO, based on three simple convictions.

- High quality financial model: Incremental royalty revenues are pure profits, resulting in fast margin expansion, negligible reinvestments, and free cash flow growth.
- Good timing: The IPO happens at a low in the smartphone market, as penetration accelerates in networking, cloud, and autos, and in the early days of the migration to the v9 architecture.
- Attractive valuation: We see 15-25% upside to the expected listing price. We value Arm at $82bn in 2026, trading on 27x royalty revenues and 40x EBIT, for royalty revenues growing mid-teens and FCF by 21% p.a. This translates into a $59 1-year Target Price.