Arm's stock could rise another 45% as the 'renaissance of CPUs' takes hold, analyst says

By Britney Nguyen

Arm is destined to play a starring role in the market for server CPUs, which could quadruple to $137 billion by the end of the decade, according to Bernstein

A Bernstein analyst initiated coverage of Arm's stock with an outperform rating and $300 price target.

Arm Holdings dominates the market for mobile processors, and one analyst sees potential for it to do the same when it comes to central processing units for servers.

The British chip designer (ARM) "is the center of the renaissance of CPUs" that is happening as artificial-intelligence agents, which can carry out tasks autonomously, depend more on general-purpose chips, Bernstein analyst David Dai said.

"Arm stands out in server CPUs given its unparalleled power efficiency," Dai said in a Monday note. He initiated coverage of the stock with an outperform rating and a $300 price target, about 45% above current levels.

According to Dai, AI data centers typically need about 30 million CPU cores, or the individual processing units inside the CPU, while agentic-AI data centers will require about 120 million CPU cores. Additionally, the ratio of CPUs to graphics processing units needed to run agentic AI has changed from 8-to-1 to 2-to-1, Dai noted. Therefore, he expects the total addressable market for server CPUs to quadruple to $137 billion by the end of the decade, with Arm at an advantage for power efficiency.

Arm-based processors are rivaled by chips built on Intel's (INTC) x86 architecture.

See more: Arm puts a big number on its newest venture, but its stock falls

Meanwhile, Arm is entering the server CPU market with its first-ever data-center chip, which Dai noted could help the company reach $15 billion in revenue by 2030. Arm said earlier this month that it has more than $2 billion in customer demand for its CPU though fiscal 2028. The company said it expects its overall data-center segment to become its largest business.

Therefore, Dai expects Arm's revenue to increase more than fivefold to $26 billion by the end of the decade. He also sees the company's earnings per share potentially growing about 5.5 times to $9.83 as AI data centers adopt more Arm-based CPUs and as the company sees revenue from its own CPU offerings. Rising royalty costs from higher-value chip designs should also support growing revenue for the company, Dai said.

Compared with the first wave of generative AI that was focused on chatbots, Dai takes the view that "agentic AI creates much more value" and will see widespread adoption.

Arm shares are down fractionally in Monday morning trading. Bloomberg reported on Friday that the U.S. Federal Trade Commission is launching an antitrust probe into the company over whether it will try to monopolize the CPU market after launching its own chip.

Don't miss: Arm has a ton of chip demand. There's just one problem.

-Britney Nguyen

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