TLDR
- HSBC upgraded Arm Holdings (ARM) to Buy from Reduce, raising its price target to $205 from $90
- HSBC says Arm is shifting from a smartphone IP company to a major AI server CPU player
- Industry CPU shipments are forecast to grow 20% in 2026 and 21% in 2027, up from a 2% average between 2021–2025
- Server CPU royalty revenue could grow at a 76% CAGR from FY2026 to FY2031, potentially reaching $4 billion
- Arm may be building its own merchant CPU chip — a move that could lift revenue per chip from ~$36–132 in royalties to ~$1,000 per unit
Arm Holdings (ARM) jumped more than 4% in premarket trading on Friday after HSBC issued a sharp upgrade, flipping its rating from Reduce all the way to Buy.
Arm Holdings plc American Depositary Shares, ARM
The bank’s analyst Frank Lee raised his price target to $205 from $90 — more than doubling it — on the basis that Arm’s pivot to AI server processors is being underpriced by the market.
“We believe Arm is now firmly in the middle of a transition from being a smartphone dependent semi-IP play, into a major AI server CPU beneficiary that remains undervalued by the market,” Lee wrote.
The upgrade centers on the expanding role of agentic AI in driving demand for server chips. HSBC says this is opening up a much larger addressable market for Arm than its traditional smartphone licensing business.
HSBC forecasts industry CPU shipments will grow 20% in 2026 and 21% in 2027. That’s a dramatic step up from an average annual growth rate of just 2% between 2021 and 2025.
All major hyperscalers are now using Arm-based server CPUs. They’re also migrating to Arm’s newer v9 architecture and its Neoverse Compute Subsystems, which effectively doubles the royalty revenue Arm earns per chip.
There’s also a core count tailwind at play. As server CPU designs grow more complex, more cores per chip means more royalties flowing to Arm.
Server Royalties Could Match Total Revenue by 2030
HSBC estimates that Arm’s server CPU royalty revenue could grow at a compound annual rate of 76% from fiscal 2026 to 2031. By fiscal 2031, that segment alone could generate around $4 billion — close to the company’s projected total revenue of $4.9 billion in fiscal 2026.
That’s a striking number. It implies server CPUs could essentially replicate the entire current business, just from one product category.
Lee puts it plainly: royalties from server CPUs “could be as big as the current overall company revenue by 2030.”
HSBC raised its fiscal 2027 and 2028 earnings estimates by 2% and 9%, respectively, to reflect these assumptions.
The Merchant CPU Wildcard
Perhaps the most closely watched element of HSBC’s note is the suggestion that Arm may be developing its own merchant server CPU — moving from licensing to direct chip sales.
The bank points to a sharp rise in R&D spending as a signal that internal chip development may be underway. If Arm does bring a merchant CPU to market, the economics shift dramatically.
Revenue per chip could go from a royalty of $36–$132 to a chip selling price of roughly $1,000 per unit. That would be a fundamentally different business model.
HSBC said further details may emerge at Arm’s “Arm Everywhere” event, scheduled for March 24.
ARM stock was up roughly 5.5% as of Friday morning trading.
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