KeyBanc has reduced its price target on Arm Holdings to $170 from $200 but left its Overweight rating unchanged, reflecting a recalibration of near- and medium-term expectations rather than a loss of conviction in the company's strategic direction. The $170 target remains significantly above Arm's trading level of $118.55, even as valuation metrics show the chip designer trading at a price-to-earnings ratio near 140, a level some regard as elevated relative to its fair value.
The analyst update follows Arm's fiscal third-quarter results for the period ending December, in which the company beat expectations on both royalties and licensing revenue. KeyBanc pointed to strong royalty growth driven largely by robust smartphone demand, supported by higher royalties tied to CSS adoption and the Armv9 architecture. Those results are consistent with a 26.45% increase in revenue over the last twelve months.
While handset-related revenue remains important, Arm's data center business is assuming a growing role in the company's mix. The data center segment now represents nearly 20% of Arm's royalties, and management projects that it could account for 50% of royalties by the end of fiscal 2028 or 2029, ultimately eclipsing the handset business. With a market capitalization of $125.76 billion, that strategic shift has the potential to materially alter Arm's long-term growth profile.
Despite the upbeat top-line trends, KeyBanc flagged risks stemming from the memory market. The firm cited rising memory prices and shortages as a likely headwind for handset royalty growth. Management expects handset unit declines of 15-20% to translate into only a 2-4% reduction in handset royalties, which the bank described as a sign of resilience, but the memory environment nonetheless prompted KeyBanc to trim fiscal 2026 estimates and lower fiscal 2027 projections. Those estimate changes are the proximate cause of the reduced price target even as the rating was kept at Overweight.
Analyst views on Arm continue to vary widely. Current targets range from $80 to $201, underscoring diverse expectations about the company's growth trajectory and valuation. Other broker actions in recent weeks reflect similar mixed sentiment. RBC Capital cut its price target to $130 from $140 while maintaining an Outperform rating, attributing the change to a slower outlook for fourth-quarter royalty growth even as management remains optimistic about achieving 20% growth by fiscal 2027. Susquehanna upgraded Arm from Neutral to Positive, highlighting initiatives in artificial intelligence as a central rationale despite the near-term challenges in the Mobile and PC markets linked to higher memory costs.
Strategic moves within Arm's organization have also drawn attention. The company has launched a new Physical AI division focused on robotics, incorporated into a reorganized structure that now includes Cloud and AI, and Edge divisions. William Blair reiterated an Outperform rating on Arm, citing multiple growth drivers that the firm views as supportive of the company's future prospects. RBC's earlier initiation with an Outperform rating had likewise noted concerns about smartphone demand and related-party contributions from SoftBank.
KeyBanc's update illustrates the balance analysts are striking between Arm's durable licensing and royalty momentum and near-term market pressures in memory and handset volumes. The bank's decision to lower its price target while maintaining an Overweight stance signals continued confidence in Arm's strategic positioning, particularly the expanding role of data center royalties, moderated by caution around memory-driven headwinds.
Investors and market participants will likely continue to weigh the pace at which data center adoption can offset cyclicality in mobile and PC markets, and how memory pricing dynamics influence handset-related royalties in the coming quarters. For now, broker actions display a mixture of optimism and caution as Arm pursues a multi-front growth strategy across Cloud and AI, Edge, and Physical AI applications.