Arm's stock could rocket 50% as Wall Street wakes up to a 'game-changing' trend, analyst says

By Hannah Pedone and Emily Bary

Arm increasingly benefits from central processing units that are becoming 'indispensable' in AI data centers

Arm's stock is up 23% so far this year, but one analyst thinks investors still don't appreciate the magnitude of the chip designer's business shift.

Wall Street isn't giving Arm Holdings enough credit for a big business transformation, according to an analyst.

Arm (ARM), a chip designer, has been broadening well beyond smartphones and now stands to capitalize even more on the booming market for server central processing units, HSBC's Frank Lee wrote in a note to clients.

That "game-changing" transition is "still being undervalued by the market," Lee argued, but he sees room for Arm's stock to climb more than 50% as the company's momentum becomes better understood. It's up 3.9% in Friday morning action, bringing its year-to-date gains to about 23%.

Lee double-upgraded Arm's stock on Friday, lifting his rating to buy from reduce and meaningfully boosting his price target to $205 from $90. He wrote that agentic artificial intelligence will spur even greater demand for CPUs.

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Agentic AI is fundamentally shifting the compute landscape in AI data centers, which relied heavily on graphics processing units at the outset. "While GPUs handle the heavy mathematical lifting for AI, modern high-core-count CPUs are becoming indispensable for orchestration, data-management, and real-time inference tasks that GPUs cannot perform efficiently," Lee wrote.

He said 2026 could mark an "inflection point" for CPU demand, getting the company closer to a medium-term milestone. Lee noted that Arm anticipates data-center business will overtake mobile to become the company's largest revenue driver in a few years.

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On Arm's last earnings call, CEO Rene Haas expressed a desire to make the company "the compute platform of choice for all AI workloads." As time goes on, he expects CPUs to be involved in more of the workloads that are currently being conducted via GPUs.

That opens up opportunity for Arm. The company currently collects royalty revenues around CPUs, but Lee is among the analysts who are eyeing "a potential new revenue stream from their own server CPU product" that has been the topic of speculation on Wall Street.

Investors should get more information on the company's strategy at the Arm Everywhere event scheduled for March 24. The company said in a release that the event will focus on "how decades of engineering leadership and collaboration across hardware, software and systems is enabling more efficient, scalable, and intelligent computing platforms."

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-Hannah Pedone -Emily Bary

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03-20-26 1141ET