Arm’s Biggest Growth Driver May Not Be Smartphones Anymore

Arm’s Biggest Growth Driver May Not Be Smartphones Anymore Vandita Jadeja Wed, September 9, 2026 at 2:30 AM GMT+9 5 min read NVDA -1.91% QCOM +2.87% ARM +4.76% Quick Read ARM earns a HOLD at $264 as data center CPUs and agentic AI displace smartphones, with AGI CPU demand already doubling to $2 billion.

NVIDIA's P/E of 46 and Qualcomm's P/E of 33 make ARM's trailing P/E of 298 look dangerously stretched at current prices.

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Our Arm (NASDAQ:ARM) thesis has shifted. Data center CPUs, agentic AI silicon, and the Arm AGI CPU are now the swing factors driving this stock, and our model reflects that pivot.

The 24/7 Wall St. price target for Arm is $264.43 over the next 12 months, versus a current price of $257. That implies 3.17% upside, and our recommendation is hold with high confidence at 90%. Arm is executing well, but the current valuation already prices in a lot of the AI narrative.

ARM has ripped higher, up 135.11% year to date and 89.7% over the past year, though shares are down 6.4% over the past month. The most recent Q1 FY2027 report showed revenue of $1.289 billion, up 22.41% year over year, beating consensus.

Royalty revenue reached $715 million and license revenue reached $574 million. CEO Rene Haas told the BBC this week that AI will cure cancer in our lifetime, underlining how aggressively management is positioning Arm as an AI infrastructure company rather than a mobile IP licensor.

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The clearest signal came from the July call. Haas said "The pace at which Arm is becoming the CPU foundation for AI infrastructure is accelerating", and management confirmed Arm AGI CPU customer demand has grown to more than $2 billion, versus the initial $1 billion opportunity.

The bull case rests on the data center CPU inflection. Neoverse shipments have surpassed 1.5 billion cores, with the most recent 500 million shipping in just nine months. Data center royalty revenue more than doubled year over year again in Q1.

Management sees the CPU total addressable market at $100 billion plus, with some industry estimates as high as $220 billion. The same buildout is lifting the power, cooling, and networking names we profiled in a free report on seven AI infrastructure suppliers that aren't chipmakers.

If Arm AGI CPU margins climb toward the 50% gross target and hyperscaler wins with Meta, Google Axion, Microsoft Cobalt, and NVIDIA Vera continue, our bull case price target of $414.56 becomes plausible.

The bear case is anchored in valuation. ARM trades at a trailing P/E of 298, and the Q1 GAAP EPS of $0.25 missed the $0.4038 estimate. Operating margin compressed to 7% from 11%.

The reported EPS was pressured by $128 million in unrealized equity gains and $343 million of SBC tied to heavy R&D investment for the AGI CPU ramp. Add the Qualcomm litigation trial expected in Q4 2026, China exposure, and export controls, and our bear case lands at $212.11.

NVIDIA (NASDAQ:NVDA) is the natural comparison because Arm's data center thesis is directly tied to NVIDIA's Vera CPU roadmap and Grace Blackwell platform. The stock trades at a P/E of 46 with a net margin of 55.6% and Q2 FY2027 data center revenue of $89.023 billion. NVIDIA looks cheap relative to Arm on P/E, which makes our $264 target on ARM look full rather than conservative.

Qualcomm (NASDAQ:QCOM) is the closest smartphone-to-data-center pivot comparable. QCOM trades at a P/E of 33 with a 2.11% dividend yield and a stated target of $40 billion in non-handset revenues by fiscal 2029. Against QCOM's diversification at a fraction of the multiple, Arm's premium valuation looks aggressive. The peer set suggests our target is fair.

Our 24/7 Wall St. price target is $264.43 with a hold rating and 90% confidence. The key factor tipping the scale is valuation. The $210 to $220 range is where forward P/E math becomes more supportive.

Key risks to monitor include AGI CPU margins slipping below the high-30s target and the Qualcomm trial creating licensing uncertainty. Arm is a high-quality company trading at a full valuation.

These projections assume Arm continues executing on AGI CPU production and hyperscaler wins. Significant upside or downside could result from Arm AGI CPU margin trajectory and the outcome of the Qualcomm trial.

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