Arm stock rallies 50% in one week on AI agent demand

Shares of Arm Holdings (NASDAQ: ARM) surged 5.22% on Wednesday to close at a new record of $313.79, capping a staggering 50% rally for the week and pushing the company’s market capitalization to $333.9 billion. The move extends a blockbuster run for the stock, which is up more than 120% year-to-date, as investors bet on Arm’s central role in the next phase of AI infrastructure growth.

The rally was ignited by bullish commentary from Bernstein, which initiated coverage with an “Outperform” rating. “Arm stands out in server CPUs given its unparalleled power efficiency,” analyst David Dai said, setting a $300 price target. Dai argues that the structural transition from training large language models to deploying autonomous AI agents requires a massive increase in localized computing intelligence, a shift that plays directly into Arm’s architectural strengths.

The stock’s momentum reflects its recent financial performance and strong forward-looking indicators. Arm’s 90-day share price return now stands at 147.62%, according to data from Simply Wall St. The company’s fiscal fourth-quarter revenue climbed 20% year-over-year to $1.49 billion, with annualized contract value—a key indicator of future business—rising 22%.

At stake is a rapidly expanding server CPU market that Bernstein estimates could grow fourfold to $137 billion by 2030. While graphics processing units (GPUs) from companies like Nvidia have dominated the AI training phase, the inference phase—where trained models generate content and make decisions—is boosting demand for more power-efficient central processing units (CPUs). This shift could allow Arm to capture a significant share of the market, with Dai forecasting Arm’s sales could surge more than fivefold to $26 billion by the end of the decade.

The Agentic AI Catalyst

Arm’s momentum is primarily driven by the emergence of agentic AI. As these autonomous systems scale across industries, the computational demands on data centers are expected to increase dramatically. To address this, Arm recently unveiled its first data center CPU, the AGI processor, which is purpose-built for these workloads.

Customer demand has already exceeded initial expectations. In just six weeks, commitments for the new CPU platform jumped from $1 billion to over $2 billion for fiscal years 2027 and 2028, providing a multi-billion-dollar backlog that de-risks near-term revenue projections. The company projects this segment alone could generate approximately $15 billion in annual revenue by fiscal 2031.

Data Centers Drive Growth

The impact of AI is already visible in Arm’s financials, particularly from major cloud providers like Alphabet's Google, Microsoft, and Meta Platforms. These hyperscalers are increasingly choosing custom Arm-based silicon over traditional x86 architecture to optimize for thermal efficiency and computing density.

This adoption drove Arm’s data center royalty revenue to more than double year-over-year in its most recent quarter, with management seeing no signs of slowing momentum. Bernstein highlighted that these data center chips command materially higher royalty rates per unit than legacy mobile processors, meaning the mix shift should drive significant operating leverage as deployments scale.

Valuation Under Scrutiny

Despite the powerful growth narrative, the stock’s rapid ascent has raised valuation concerns. With a forward price-to-earnings (P/E) multiple of 228.7 times, ARM stock is priced for near-flawless execution. The stock’s relative strength index (RSI) is also approaching overbought territory, which can often signal a near-term pullback.

A more conservative analysis from Simply Wall St suggests the stock may be significantly overvalued, pointing to a fair value of just $39.16 based on discounted cash flow models. This valuation leans heavily on the company’s own 16% compound annual growth rate estimate, which it has recently been exceeding. The gap between the current price and this estimate highlights the market’s extraordinary expectations for Arm’s AI-fueled growth.

Overall, Wall Street analysts remain cautiously optimistic with a “Moderate Buy” consensus rating. While Arm’s foundational role in the AI revolution provides a strong long-term thesis, many investors may find a future pullback to be a more attractive entry opportunity.

This article is for informational purposes only and does not constitute investment advice.