HSBC Upgrades Arm Holdings Rating, Optimistic on AI Server Transition and New CPU Advancement

LootboxPhobia · 2026-03-20T16:34:27+00:00

HSBC upgraded Arm Holdings from underweight to buy with a price target of $205, believing the potential of its transformation toward AI server processors is insufficiently reflected. The bank expects server CPU royalty revenue to grow at an annual rate of 76% from 2026 to 2031, and the possibility of launching proprietary chips could significantly enhance profitability.

LootboxPhobia

2026-03-20 16:34:27

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Investing.com - HSBC upgrades Arm Holdings’ rating from Reduce to Buy, believing that the value of this chip design company’s transition to AI-driven server processors has not yet been fully reflected in its valuation.

The broker raised its target price from $90 to $205, citing the shift from an authorization model focused on smartphones to a broader role for AI server CPUs as a “game-changer.”

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HSBC states that Arm is benefiting from rising demand for server chips related to AI inference, which is expanding the addressable market and boosting expected shipment growth.

The bank forecasts that industry CPU shipments will grow 20% in 2026 and 21% in 2027, significantly higher than the 2% average growth rate from 2021 to 2025.

Adoption of Arm’s v9 architecture and Neoverse compute subsystems is also increasing the licensing fee rate per chip, as major hyperscale cloud providers and other customers are shifting to newer designs.

HSBC expects these factors, along with an increase in server processor core counts, will drive rapid growth in licensing revenue.

The bank estimates that Arm’s server CPU licensing revenue could have a compound annual growth rate of 76% from fiscal year 2026 to 2031. It predicts that licensing fees from this segment alone could reach about $4 billion by fiscal year 2031, close to the company’s projected total revenue of $4.9 billion in fiscal year 2026.

HSBC also notes that entering the commercial server CPU market could be a key upside driver. The bank states that a significant increase in R&D spending suggests Arm may launch its own server chips, shifting part of its business model from licensing fees to direct chip sales.

This move could substantially increase unit revenue, from tens of dollars per license to approximately $1,000 per chip, significantly changing profit potential. HSBC expects Arm to disclose more details at the “Arm Everywhere” event on March 24.

The bank has raised its earnings forecasts for fiscal years 2027 and 2028 by 2% and 9%, respectively, and states that given the company’s business model changes and long-term growth potential, the stock deserves a higher valuation multiple.

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