Arm Holdings Plc (ARM) is entering a new phase of growth as stronger licensing demand, rising data-center royalties and its upcoming AGI server CPU offset near-term smartphone weakness, according to Rosenblatt and Guggenheim analysts.

Rosenblatt Sees Data Center And AGI CPU Driving Upside

Rosenblatt analyst Kevin Cassidy maintained a Buy rating and a $250 price forecast, arguing that Arm's licensing momentum and growing server exposure strengthen its longer-term outlook.

Arm reported fiscal second-quarter revenue of $1.443 billion, up 27% year over year and above Rosenblatt's $1.380 billion estimate and the $1.378 billion consensus. License and other revenue rose 50% to $773 million, while royalty revenue increased 8% to $670 million.

Non-GAAP operating margin expanded 310 basis points to 44.2%, while adjusted EPS of $0.52 beat Rosenblatt's $0.47 estimate and the $0.48 consensus.

Cassidy said data-center royalties doubled year over year, supported by hyperscaler adoption and higher Arm CPU content. Management expects Arm-based CPUs to exceed 60% share at leading hyperscalers by the end of calendar 2026, up from more than 50% in 2025.

He also highlighted Arm's AGI server CPU, which remains on track for initial commercial deliveries in fiscal Q4 2027. Arm has secured purchase orders extending through calendar 2027 and raised its confidence in generating up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028, compared with more than $1 billion previously.

Rosenblatt raised its fiscal Q3 revenue and EPS estimates to $1.54 billion and $0.56, respectively. It also lifted fiscal 2027 revenue and EPS estimates to $6.122 billion and $2.26.

For fiscal 2028, Cassidy raised his revenue estimate to $8.170 billion while lowering EPS to $3.05. His $250 forecast applies a 75-times multiple to his fiscal 2028 non-GAAP EPS framework.

Guggenheim Highlights Licensing Strength But Flags Smartphone And Cash-Flow Pressure

Guggenheim analyst John DiFucci also maintained a Buy rating, with a $255 price forecast.

DiFucci said Arm's fiscal second-quarter revenue beat Street expectations by about 5%, largely because license revenue surpassed consensus by 16%. Arm told investors that licensing came in roughly $100 million above expectations as customers accelerated long-term commitments.

The company signed three new Arm Total Access agreements, taking active agreements above 60, and added four CSS licenses, including two for data centers and two for smartphones.

DiFucci also pointed to data-center royalties doubling year over year and physical AI royalties growing 50%, driven by automotive and robotics adoption.

However, edge royalties were flat as higher memory prices pressured smartphone shipments, partially offset by higher Armv9 and CSS royalty rates.

Guggenheim noted that non-GAAP operating income reached $638 million, above the $573 million consensus, while EPS of $0.52 beat the $0.48 estimate.

Free cash flow, however, came in at $110 million, well below the $350 million Street estimate, which DiFucci attributed to working-capital changes that he expects to reverse over the next several quarters.

For fiscal Q3, Arm guided revenue to $1.54 billion, plus or minus $50 million, representing about 24% year-over-year growth at the midpoint. Management expects license revenue to grow slightly above 50% year over year, while royalty revenue should rise in the low teens sequentially and low single digits year over year.

DiFucci said continued cloud AI and physical AI growth should offset some pressure from weaker smartphone demand. He valued Arm at $255 using a DCF framework that assumes a longer hyper-growth period than Guggenheim typically applies to software companies.

ARM Price Action: ARM Holdings shares were down 14.28% at $164.42 at the time of publication on Thursday, according to market data.