ARM (ARM) is positioned to benefit from agentic artificial intelligence-driven CPU growth and there is room for upside potential as supply constraints ease, RBC Capital Markets said in a Thursday research note.
The company has line of sight to more than $2 billion in AGI CPU revenue across fiscal 2027 and 2028, but it maintained its prior outlook because of wafer and memory supply constraints, according to the brokerage.
In fiscal Q4, data center and cloud AI royalty revenue more than doubled from a year earlier on the ramp of ARM-based server chips across major hyperscalers. The data center segment is on track to become the company's largest business segment, analysts wrote.
For fiscal 2027 and 2028, RBC said it now expects EPS of $2.18 and $3.12, respectively, from prior estimates of $2.01 and $3.03, according to the note.
Growth in AI cluster sizes is also driving demand for networking, where ARM remains the dominant architecture. The company's 20% long-term growth rate for royalties is likely conservative, according to the note.
RBC reiterated its outperform rating on the stock and boosted its price target to $260 per share from $175.
Shares of ARM were down more than 9% in Thursday trading.
Price: $215.08, Change: $-22.23, Percent Change: -9.37%