Raymond James Reinstates Semi Coverage, Calls ARM a Key AI Beneficiary

Core Viewpoint - Arm Holdings plc is gaining attention in the AI sector, with Raymond James reinstating coverage on the semiconductor sector, highlighting significant upside potential for ARM despite strategic uncertainties and valuation challenges [1] Group 1: Company Transition and Strategy - Arm is transitioning towards data centers, leveraging opportunities driven by AI, and licenses its semiconductor intellectual property to a wide range of fabless semiconductor customers, generating ongoing revenue through royalties [2] - The company is considering becoming a fabless semiconductor supplier to capture more value in the ARM processor value chain, which could increase profits but also introduce risks and potentially lower stock multiples [2] Group 2: Ownership and Market Exposure - SoftBank holds a 90% ownership stake in ARM, meaning any strategic shifts must align with SoftBank's philosophy [3] - ARM's exposure to data centers is growing, now estimated to account for 20% of sales, with key customers including Amazon, Google, and Microsoft, while exposure to Arm China, Apple, and Samsung is declining [3] Group 3: Revenue Streams and Focus Areas - ARM's revenue streams are evolving, with a current estimated 50-50 split across segments, and management is focusing on increasing royalties from Neoverse and CSS [4] - Royalties from CSS sales can be nearly double that of commoditized legacy chips, with adoption accelerating as hyperscalers invest in expanding AI capacity and building new clusters [4]