TLDR
- Susquehanna upgraded Arm Holdings to Positive despite 30% stock decline over six months
- Arm is working with SoftBank and Broadcom on OpenAI’s custom AI chip Titan-1, expected to ramp in late 2026
- The OpenAI chip project could generate over $1 billion annually in royalty revenue versus $2.5 billion total royalties expected this year
- Arm is charging double the royalty rate as chipmakers shift from v8 to v9 architecture in smartphones
- Susquehanna set a $150 price target on the stock
Arm Holdings received an upgrade to Positive from Susquehanna analysts who see the chip designer positioned to benefit from new data center projects and higher per-device fees. The upgrade comes after the stock dropped 30% over the past six months.
Arm Holdings plc American Depositary Shares, ARM
The decline stemmed from concerns about weaker demand for phones and PCs as memory prices climb. Analysts now believe these worries are fully priced into the stock.
The company is reportedly developing a custom AI chip for OpenAI called Titan-1. Arm is collaborating with SoftBank and Broadcom on the project.
This marks an expansion beyond Arm’s traditional central processors into AI accelerators. The first version is expected to begin production in late 2026.
Susquehanna estimates the OpenAI program could eventually generate more than $1 billion per year in royalty revenue. That compares to about $2.5 billion in total company royalties expected this year.
The firm also sees growing adoption of Arm-based processors in data centers. Major cloud companies are deploying new in-house chips built on Arm designs.
These chips feature higher core counts that translate into higher royalty payments per chip. Arm Holdings is also reportedly developing a custom server processor for Meta.
New Revenue Streams Beyond Licensing
The Meta project would represent a shift from Arm’s traditional licensing model. Instead of just licensing designs, the company would sell finished chips.
That move would allow Arm to capture a larger share of profits from each unit sold. The change could become a new revenue driver for the company.
In the smartphone market, Arm is offsetting softer unit volumes by charging more per device. Chipmakers are moving from Arm’s older v8 architecture to the newer v9 standard.
The v9 architecture carries roughly double the royalty rate compared to v8. Adoption of v9 remains well below the peak levels seen with v8.
This leaves room for further gains in 2026. Arm is also pushing a more integrated chip design approach that commands even higher fees.
Higher Fees From Premium Smartphones
Samsung, MediaTek and Xiaomi have already adopted this integrated approach in premium phones. The strategy helps Arm maintain revenue growth even as unit volumes soften.
Some analysts argue the recent stock pullback is overdone. They note the weakness comes more from broader market dynamics than from any shift in Arm’s strategy.
The two major data center projects could be game changers for the company’s future. These form the basis of the more optimistic outlook on the stock.
Susquehanna has set a $150 price target on Arm shares. The stock is currently trading near multi-month lows after the 30% decline.
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