Shares of Arm Holdings plc (ARM) are back in the spotlight after a rare and aggressive vote of confidence from HSBC, which double-upgraded the chip designer from “Reduce” to “Buy” while more than doubling its price target to $205. The bullish call reflects a growing belief that Arm is no longer just a smartphone-dependent licensing business, but a central player in the next wave of artificial intelligence (AI) infrastructure. HSBC explicitly framed Arm as a “game-changing” beneficiary of AI server CPUs.

HSBC highlighted the accelerating adoption of Arm’s newer v9 architecture and Neoverse platforms by hyperscalers, which is boosting royalty rates per chip and expanding its addressable market. Plus, expectations for rapid growth in AI-driven server CPU demand, with industry shipments projected to jump sharply versus prior years, are driving a step-change in long-term revenue potential, including forecasts for server CPU royalties to grow at a 76% CAGR until 2031 and reach roughly $4 billion.

With AI-driven demand accelerating and Arm’s architectures boosting royalty rates, analysts now see a multi-year growth runway that could materially reshape its earnings power. So, does this upgrade mark the beginning of a sustained re-rating or is much of the AI optimism already priced in?

About Arm Holdings Stock

Arm Holdings is a semiconductor and software design company best known for developing the ARM architecture, a family of energy-efficient central processing unit designs widely licensed across the technology industry. Headquartered in the United Kingdom, Arm doesn’t manufacture physical chips itself but instead generates revenue by licensing its processor designs and related intellectual property to semiconductor companies and original equipment manufacturers, while also earning royalties on chips shipped by its partners. ARM went public on the NASDAQ in September 2023, and its market cap is $144.6 billion.

Shares of Arm Holdings have delivered a volatile but ultimately positive performance profile over the past year, reflecting both AI-driven optimism and valuation-driven pullbacks.

Over the last 12 months, the stock is up 8.1%, masking significant swings that saw it trade as high as $183.16 in October 2025 and as low as $80 in April 2025.

Year-to-date (YTD), Arm has rebounded strongly, gaining 23.47%, as investor confidence improved following earlier corrections and renewed enthusiasm around AI infrastructure exposure.

More recently, the stock has experienced a sharp near-term surge of 6% over the past five days, further fueled by HSBC’s high-profile double upgrade, which catalyzed a re-rating narrative centered on Arm’s expanding role in AI data center CPUs and improving royalty economics. The stock rose almost 2% on March 20 following the upgrade.

The stock is trading at a significant premium compared to industry peers at 155.71 times forward earnings.

Steady Quarterly Performance

Arm Holdings reported its fiscal third-quarter 2026 results on Feb. 4 (for the quarter ended Dec. 31, 2025), delivering another strong set of numbers that underscored its growing role in AI-driven computing.

The company posted revenue of $1.24 billion, up 26% year-over-year (YOY), marking its fourth consecutive billion-dollar quarter, while adjusted EPS came in at $0.43, rising about 10.3% YOY, both exceeding Wall Street expectations.

Royalty revenue, the key profit driver, climbed 27% YOY to $737 million, benefiting from increasing adoption of Armv9 architectures and higher royalty rates per chip, particularly in data center and AI workloads, while licensing revenue rose 25% YOY to $505 million as demand for next-generation designs remained robust. Its Annualized Contract Value (ACV) increased 28% YOY.

Furthermore, for fiscal Q4, management is projecting revenue of around $1.47 billion +/- $50 million and adjusted EPS of approximately $0.58 +/- $0.04.

The outlook reflects sustained strength in AI-related demand across cloud, edge, and mobile markets.

Analysts predict EPS to be around $0.85 for fiscal 2026, a decline of around 19.8% YOY, but again rise 40% to $1.19 in fiscal 2027.

What Do Analysts Expect for Arm Stock?

Beyond HSBC’s bullish double upgrade, other recent analyst activity has also reflected a constructive stance on Arm Holdings plc. Notably, Morgan Stanley reiterated its “Overweight” rating on Arm Holdings with a $135 price target. The firm highlighted growing investor focus on Arm’s chiplet strategy and potential shift toward chip design, with expectations for new chip announcements and additional product disclosures in the near term.

However, BofA Securities reiterated a “Neutral” rating with a $140 price target on Arm Holdings, acknowledging recent stock strength but maintaining a cautious stance. The firm highlighted Arm’s planned entry into in-house CPU design, which could significantly expand its exposure to the AI-driven CPU market and materially increase its long-term addressable opportunity. However, BofA noted that meaningful revenue contributions may take two to three years to materialize.

The stock has a consensus “Moderate Buy” rating overall. Out of 30 analysts covering the stock, 20 recommend a “Strong Buy,” one gives a “Moderate Buy,” eight analysts stay cautious with a “Hold” rating, and one has a “Strong Sell” rating.

ARM’s average analyst price target of $158.64 indicates a 17.6% upside potential, while the Street-high target price of $210 suggests 55.6% upside ahead.