Major Bank Ratings | Citi: Arm Still Has Strong Growth Momentum and Growth Stock Characteristics, Target Price Lowered to $190

Glonghui, February 6th｜Citi released a report stating that Arm, the UK chip designer under SoftBank, slightly exceeded expectations in both revenue and profit for the third quarter of fiscal year 2026 ending in December last year. The bank believes Arm still possesses strong growth momentum and characteristics of a growth stock, with compound annual growth rates for revenue and earnings per share exceeding 20% and 25% respectively, which is sufficient to support its premium valuation. The report points out that the market is currently focused on two major concerns: the impact of memory price/supply fluctuations on Arm's mobile patent royalties, and the scale of investment required for Arm to enter the physical chip sector. Regarding memory risk, Arm estimates the impact on patent royalties for fiscal year 2027 to be only in the low single-digit percentages, which can be offset by its data center business. Based on the overall growth in the potential market size (TAM) for cloud AI and the popularization of CSS technology, the bank has raised its revenue forecasts for Arm for fiscal years 2026 and 2027 by 1% each, expecting strong revenue growth of 23% and 21% respectively; the target price has been lowered from $200 to $190, with a “Buy” rating.