Arm Stock Climbs 5% After HSBC Upgrades to Buy Amid Its AI Server CPU Transition

TLDR

• HSBC lifted Arm Holdings (ARM)’s rating from Reduce to Buy, increasing its price target from $90 to $205
• HSBC notes Arm is transitioning from a smartphone-focused IP firm to a key player in AI server CPUs
• Industry CPU shipments are projected to rise 20% in 2026 and 21% in 2027—up from an average annual growth rate of just 2% between 2021 and 2025
• Server CPU royalty revenue might see a 76% compound annual growth rate (CAGR) from FY2026 to FY2031, possibly hitting $4 billion
• Arm could be developing its own merchant CPU chip, a step that might boost per-chip revenue from roughly $36–$132 in royalties to around $1,000 per unit

(SeaPRwire) –   Arm Holdings (ARM) saw a premarket gain of over 4% on Friday following a significant upgrade from HSBC, which reversed its rating from Reduce to Buy.

Arm Holdings plc American Depositary Shares, ARM

Frank Lee, an analyst at the bank, increased his price target for Arm from $90 to $205 (more than doubling it), citing that the market is undervaluing Arm’s shift toward AI server processors.

“We believe Arm is now firmly in the middle of a transition from being a smartphone dependent semi-IP play, into a major AI server CPU beneficiary that remains undervalued by the market,” Lee wrote.

The upgrade focuses on the growing impact of agentic AI in fueling demand for server chips. HSBC states this is unlocking a far bigger addressable market for Arm compared to its conventional smartphone licensing operations.

HSBC projects industry CPU shipments will grow by 20% in 2026 and 21% in 2027— a marked increase from the 2% average annual growth rate recorded between 2021 and 2025.

All leading hyperscalers currently use Arm-based server CPUs. They’re also moving to Arm’s newer v9 architecture and Neoverse Compute Subsystems, which essentially doubles the royalty income Arm gets per chip.

A core count tailwind is also contributing. As server CPU designs become more intricate, a higher number of cores per chip translates to increased royalties for Arm.

Server Royalties Could Match Total Revenue by 2030

HSBC calculates that Arm’s server CPU royalty revenue could grow at a 76% CAGR from FY2026 to FY2031. By FY2031, this segment alone might bring in approximately $4 billion—nearly matching the company’s expected total revenue of $4.9 billion in FY2026.

This is a notable figure. It suggests that server CPUs could practically duplicate Arm’s entire existing business through just one product line.

Lee puts it plainly: royalties from server CPUs “could be as big as the current overall company revenue by 2030.”

To account for these assumptions, HSBC increased its earnings forecasts for fiscal 2027 and 2028 by 2% and 9% respectively.

The Merchant CPU Wildcard

One of the most closely monitored points in HSBC’s report is the indication that Arm might be creating its own merchant server CPU, shifting from licensing to direct chip sales.

The bank highlights a steep increase in R&D expenditure as a sign that internal chip development could be in progress. Should Arm launch a merchant CPU, the financial dynamics would change significantly.

Per-chip revenue could jump from royalty fees of $36–$132 to a selling price of about $1,000 per unit. This would represent a completely different business model.

HSBC noted that additional details might be revealed at Arm’s “Arm Everywhere” event, set for March 24.

As of Friday morning trading, ARM stock had gained approximately 5.5%.