Arm Holdings (ARM) had a strong Wednesday, closing up 3.93% at $251.06 before extending gains in after-hours trading to $263, a further 4.76% move. The rally was driven by an expanded collaboration with IBM that will bring Arm architecture to IBM Z and LinuxONE mainframe systems, and it builds on momentum behind Arm's new AGI CPU for AI data centers, which has already booked more than $2 billion in future orders. A fresh price-target increase from Raymond James, which lifted its target to $641 from $565 while maintaining an Outperform rating, added further support.

The gains extend what has been a strong run for the chip designer, which is up 79% over the past 12 months and carries a market capitalization of roughly $268 billion. SoftBank still owns about 90% of Arm's shares following the company's September 2023 Nasdaq listing, leaving only a small portion of the stock in public hands.

IBM Deal Puts Arm Inside the Mainframe

The catalyst for Wednesday's rally was an expanded collaboration between Arm and IBM announced earlier this week. Under the agreement, IBM will bring Arm architecture to future IBM Z and LinuxONE mainframe systems, creating the first dual-architecture processor to emerge from the partnership.

The stakes are notable because mainframes remain a fixture in banking, payments, and other transaction-heavy industries, where z/OS software has decades of installed enterprise applications.

Mohamed Awad, Arm's EVP of Cloud AI, explained that each processor core will natively execute both IBM and Arm instructions. That design allows Arm-native Linux environments to run alongside z/OS and existing Linux applications on the same hardware.

IBM Z and LinuxONE are enterprise server families built for high security, large-scale operations, and mission-critical workloads. Bringing Arm architecture into that ecosystem represents a meaningful expansion of Arm's reach beyond its traditional markets.

$2 Billion in AGI CPU Orders

The IBM news arrived on top of already-building momentum around Arm's new AGI CPU. The chip, designed for AI data centers, has already booked more than $2 billion in future orders.

The order book marks a significant milestone for the company: it is Arm's first self-designed data center chip after 35 years as a pure licensing business. Arm is co-developing the chip with Meta.

Arm-based silicon already has a foothold in cloud data centers through licensee-built chips such as Amazon's Graviton, Microsoft's Cobalt, and Google's Axion, so the AGI CPU extends Arm's data center presence from licensed partner designs into its own product.

Investors had been pricing in some of this AI enthusiasm ahead of Nvidia's earnings, which acted as a broader sentiment driver for the chip sector. When Nvidia's results came in, some traders locked in gains, creating short-term volatility in ARM shares earlier in the week.

Raymond James Raises Target to $641

Raymond James raised its price target on ARM to $641 from $565 on Tuesday, keeping an Outperform rating in place. The new target implies significant upside from current levels if the analyst's thesis plays out.

The upgrade followed Arm's stronger-than-expected first-quarter results in late July. The company reported earnings of 45 cents per share against a 40-cent consensus estimate, while revenue came in at $1.29 billion, topping the $1.26 billion forecast.

Stock Performance and Risk Factors

ARM's gain over the past 12 months now stands at 79%. The stock has a 52-week range of $100.02 to $452.61 and is currently trading at about 43% of that range. Its market cap sits at roughly $268 billion, and an RSI reading of 43.79 suggests the stock is not in overbought territory despite the recent run.

One risk worth watching is smartphone demand. Arm's architecture is used in the overwhelming majority of smartphones sold worldwide, so a weaker device market can drag on royalty income, since fewer chips shipping means less revenue from the company's licensing model.

Beyond handsets, how and when the more than $2 billion in booked AGI CPU orders converts into reported revenue will be a key line to watch in coming quarters, alongside any further detail on timing for the IBM mainframe processors.

Raymond James' revised $641 price target remains the most recent analyst move on the stock.

Source: CoinCentral