Palantir Technologies was the best-performing member of the S&P 500 (SNPINDEX:$SPX) in 2024. Its share price surged 340% last year as growing demand for its artificial intelligence platform excited investors. Palantir has grown into a $181.9 billion business, but I think semiconductor comany Arm Holdings (NASDAQ:ARM) can top that figure in 2025.
Here's what that would mean for shareholders: Arm is currently worth $148 billion. So its stock price would need to advance 23% to $174 per share for its market value to hit $182 billion. I see that as a likely outcome in 2025 because of growing demand for power-efficient AI infrastructure. And the following Wall Street analysts have set target prices that support my prediction.
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- Morgan Stanley analyst Lee Simpson: $175 per share.
- Evercore analyst Mark Lipacis: $176 per share.
- Bank of America analyst Vivek Arya: $180 per share
- Loop Capital Ananda Baruah: $180 per share.
Here's what investors should about this semiconductor stock.
Arm chips are ubiquitous in smartphones and gaining share in data centers
Arm is a semiconductor company that doesn't sell semiconductors. Instead, it designs central processing unit (CPU) architectures, and licenses the intellectual property (IP) to customers. The customers can then use the IP to design custom chips optimized to their needs, while Arm earns revenue through licensing and per-unit royalties.
Arm also provides related technologies like systems IP and software development tools. The former helps engineers bring together CPUs, GPUs, memory, and other hardware to design Arm-based systems. The latter simplifies application development on Arm-based chips across domains like artificial intelligence (AI), robotics, and scientific computing.
Arm chips have historically been more power efficient than competing processors built on the x86 architecture from Intel and AMD. Consequently, Arm chips are ubiquitous across mobile devices, including 99% market share in smartphones. But the company has made strides in improving performance, such that its data center market share has increased six percentage points in the last two years.
Importantly, the three largest public clouds have designed Arm-based chips for their data centers: Graviton processors from Amazon Web Services, Axiom CPUs from Alphabet's Google Cloud, and Cobalt CPUs from Microsoft Azure. Additionally, Arm CEO Rene Haas recently wrote, "Ten of the world's largest hyperscalers are developing and deploying Arm-based chips into their data centers."
One potentially important example is the Nvidia Grace-Blackwell superchip, which pairs Nvidia GPUs with Arm CPUs. CEO Jensen Huang believes the Blackwell platform will be the most successful product in company history, and perhaps the most successful product in the history of computing. That bodes well for Arm because the company collects per-chip royalties.
Image source: Getty Images.
Arm stock is expensive, but Wall Street may be underestimating growth
In summary, Arm-based chips are the industry standard in smartphones, and they are gaining market share in other product categories, including data centers. That means Arm is increasingly well positioned to benefit as enterprises invest in artificial intelligence. AI systems require a tremendous amount of electricity, which means Arm's energy-efficient chips could be an attractive source of cost-savings.
Wall Street expects Arm's adjusted earnings to grow at 33% annually through fiscal 2027, which ends in March 2027. That consensus estimate makes the current valuation of 104 times adjusted earnings look expensive. But Arm has consistently beat consensus forecasts in recent quarters, so Wall Street may be underestimating its growth trajectory.
Importantly, if Arm's earnings grow 33% over the next four reports -- meaning the next four times the company announces financial results -- its share price could increase 23% to $174, while its price-to-earnings multiple declined slightly. That would bring its market value to $182 billion, which would top Palantir's current market value of $181.9 billion.
However, if Arm continues to beat Wall Street's earnings estimates, the share price could move even higher. Indeed, Morgan Stanley analysts have outlined a bull-case scenario in which the stock hits $300 per share before the end of 2025. That implies 112% upside from its current share price of $141.
Should you invest $1,000 in Arm Holdings right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Intel, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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