Shares of Arm Holdings (ARM +0.89%) climbed sharply higher on Thursday, rising as much as 8.7%. As of 11:45 a.m. ET, the stock was still up 6%.
The catalyst that drove the semiconductor specialist higher was an aggressive price target increase and bullish commentary from a Wall Street analyst.
Image source: The Motley Fool.
Long-term tailwinds
Bank of America analyst Vivek Arya maintained a neutral (hold) rating on Arm Holdings and raised his price target to $335 from $245 -- so the analyst was clearly playing catch-up. That represents potential gains for investors of 9% compared to Wednesday's closing price.
The analyst raised his outlook for the global CPU market to $170 billion over the next five years, up from $125 billion, suggesting 37% compound annual growth by the end of the decade. Arm is the leading supplier of CPU design and architecture, so this forecast is a positive development for the company.
The analyst went on to say that the adoption of artificial intelligence (AI) agents will increase the market for CPUs because the decision-making process used by agentic AI is uniquely suited to CPUs. These secular tailwinds will act as a "powerful demand accelerant that expands the CPU opportunity and lifts both x86 incumbents and Arm challengers."
NASDAQ: ARM
Key Data Points
Earlier this year, the company unveiled the Arm AGI CPU, the first time it has released its own chip. Management updated its long-term forecast and expects to generate $25 billion in annual revenue and $9 in earnings per share by 2031, with $15 billion from sales of the Arm AGI CPU.
To be clear, Arm sports a frothy valuation, selling for 106 times next year's expected earnings. However, if management's guidance is accurate, the stock is selling for 34 times 2030 expected earnings, which makes it just a bit more reasonable.
