Citigroup Maintains Buy Rating for Arm Despite Qualcomm Dispute

Citigroup has reaffirmed its "buy" rating for Arm Holdings, setting a target price of $200 per share. The firm believes that Arm's long-term growth potential is underestimated by the market, particularly in the areas of artificial intelligence and semiconductor capital expenditure. Despite recent legal disputes with Qualcomm, Citigroup maintains that Arm's technological advantages and market demand will drive its long-term stock performance.

The legal dispute between Arm and Qualcomm has escalated recently, with Qualcomm accusing Arm of anti-competitive behavior and filing complaints with multiple regulatory bodies. Earlier, a jury in Delaware ruled in favor of Qualcomm on two out of three counts in the lawsuit, with the third count remaining undecided. Both parties are set to enter a court-mandated mediation phase in May.

Citigroup acknowledges that the outcome of the dispute is uncertain, but notes that there is a possibility of a settlement during the mediation phase. If the dispute is not resolved, the case may continue to a later review process this year. Qualcomm's actions are seen as a strategy to gain more leverage in the mediation, while Arm has publicly denied the allegations of anti-competitive behavior.

Analyst Andrew Gardiner from Citigroup highlights that Arm is effectively responding to customer demands. He points out that customers are increasing their purchases of intellectual property and are willing to pay a premium for faster delivery. Arm's record licensing revenue and numerous authorization agreements indicate that its sales strategy is not restrictive but rather adaptable to evolving market needs. In the long term, Arm's growth potential in artificial intelligence and semiconductors is a key driver of its valuation.