Apple (NASDAQ:AAPL) launched its iPhone 16 lineup earlier this week, aiming to tap into the AI revolution. This development could not only boost Apple’s sales but also have positive implications for Arm Holdings (NASDAQ:ARM).
That at least is the opinion of Morgan Stanley’s Lee Simpson, who says the global leader in silicon IP is “often overlooked as an AI beneficiary.”
“Following the launch of the iPhone 16 on Monday and the indicated utilisation of Arm v9 architecture in the A18 processor, Arm remains our favoured play on the emerging Edge AI opportunity,” Simpson went on to say. “We expect mobile to drive initial upside, followed by infrastructure and autos.”
Companies such as Apple, Samsung, and Nvidia utilize Arm Holdings' central-processing-unit (CPU) chip architectures. Arm generates revenue through licensing fees and royalties based on the volume of products sold. Arm’s key growth drivers include increased use of the company’s v9 central processing unit (CPU) designs, more custom silicon demand, and greater use of CPU extensions.
Licensing revenue is earned from granting permission to use Arm's intellectual property, while royalty revenue is an ongoing payment linked to the sales or use of that IP.
Arm’s CEO, Rene Haas, has noted that the V9 chip design generates twice the royalties compared to the V8 generation, with rates around 4%, compared to the previous average of 1.7% for earlier designs.
Arm Holdings American depositary receipts (ADRs), which have nearly doubled in value so far this year. Wednesday, were up 8.8% at $138.40 with about half an hour left in Wednesday's session.
Arm Holdings (ARM) shares surged on Wednesday after Morgan Stanley analysts designated the chip designer as their "New Top Pick," citing its expanding role in artificial intelligence (AI) products.
The analysts highlighted Arm's crucial role in the shift to edge AI, where AI processes data closer to its source, rather than relying on centralized cloud computing or data centers.
The report also referenced the recent launch of Apple's (AAPL) iPhone 16, which features Arm's architecture in the A18 processor.
Morgan Stanley analysts described Arm as their "favored play" for edge AI technology, predicting that mobile devices will drive initial growth, with infrastructure and automotive sectors following suit.
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