TLDR
- Arm Holdings receives Positive upgrade from Susquehanna following 30% stock decline
- Company developing OpenAI’s Titan-1 AI chip with SoftBank and Broadcom, launching late 2026
- OpenAI project could add $1 billion in annual royalties versus current $2.5 billion total
- V9 architecture adoption doubles royalty rates per smartphone device
- Analyst price target set at $150 per share
Susquehanna analysts upgraded Arm Holdings to Positive after the stock fell 30% in six months. The upgrade focuses on new data center opportunities and rising per-device revenue.
Arm Holdings plc American Depositary Shares, ARM
Concerns about phone and PC demand drove the selloff as memory prices increased. Analysts believe these concerns are now fully reflected in the stock price.
Arm is reportedly building a custom AI chip for OpenAI alongside SoftBank and Broadcom. The project, called Titan-1, represents the company’s first move into AI accelerators.
Production is expected to begin in late 2026. Follow-on versions will drive higher volumes through the end of the decade.
Susquehanna estimates the OpenAI chip could generate over $1 billion annually in royalty revenue. This compares to total company royalties of approximately $2.5 billion expected this year.
The company is also seeing increased adoption of Arm-based processors in data centers. Major cloud providers are rolling out in-house chips built on Arm designs.
These chips feature higher core counts. More cores mean higher royalty payments per chip sold.
Meta Server Chip Shifts Business Model
Arm is developing a custom server processor for Meta in another revenue opportunity. This project represents a departure from the traditional licensing model.
Rather than just licensing chip designs, Arm would sell finished processors. The change allows the company to capture more profit from each unit.
In smartphones, Arm is charging more per device even as unit volumes decline. Chipmakers are transitioning from the older v8 architecture to the newer v9 standard.
The v9 architecture carries approximately double the royalty rate. Current v9 adoption remains well below peak v8 levels.
This gap leaves room for continued growth in 2026. Arm is also promoting a more integrated chip design approach with even higher fees.
Samsung, MediaTek and Xiaomi have already implemented this approach in premium devices. The strategy maintains revenue growth despite softer unit sales.
Higher Royalty Rates Drive Revenue
Some analysts view the recent decline as excessive. They attribute the weakness to broader market conditions rather than company-specific issues.
The two data center projects could transform the company’s revenue profile. These opportunities form the foundation of the upgraded analyst outlook.
Susquehanna placed a $150 price target on shares. The stock currently trades near multi-month lows following the six-month decline.
Cloud providers continue deploying Arm-based chips at an accelerating pace. Higher core counts in these designs boost per-chip royalty payments.
The v9 architecture transition in smartphones provides another revenue tailwind. Chipmakers pay double the rate compared to v8 designs.
Arm’s integrated design approach commands premium fees from manufacturers. Premium smartphone makers are adopting this technology first.
The OpenAI Titan-1 chip project begins production in late 2026. Multiple versions are planned through 2030.
