Citibank: Arm still has strong growth momentum and growth stock characteristics, target price lowered to $190

Citigroup reports that SoftBank’s UK chip designer Arm’s revenue and profit for the third quarter of fiscal year 2026, ending December last year, slightly exceeded expectations. The bank believes that Arm still has strong growth momentum and growth stock characteristics, with compound annual growth rates of over 20% for revenue and 25% for earnings per share, enough to support its premium valuation. The report notes that the market’s short-term concerns are twofold: the impact of storage price and supply fluctuations on Arm’s licensing fees from mobile patents; and the scale of investment needed for Arm’s expansion into physical chip markets. Regarding storage risks, Arm estimates the impact on patent fees for fiscal year 2027 to be only in the low single digits percentage-wise, and this can be offset by data center business. Based on the overall growth potential (TAM) of the cloud AI market and the proliferation of CSS technology, the bank has raised its revenue forecasts for Arm for fiscal years 2026 and 2027 by 1% each, expecting strong growth of 23% and 21%, respectively. The target price has been lowered from $200 to $190, with a “Buy” rating.