ARM Holdings gains on Morgan Stanley upgrade to 'overweight'

Shares in chipmaker ARM Holdings have been boosted after Morgan Stanley upgraded the stock to ‘overweight’ from ‘equalweight’ and raised its share price target to 1,180p from 980p.

The bank said that concerns around a slowdown of the smartphone market have created a buying opportunity for ARM, noting that the stock is barely up year-to-date, at the bottom of its 5-year price-to-earnings range.

“ARM’s investment case is shifting, from peaks and troughs driven by product cycles, to more consistent, steady growth for the next decade,” Morgan Stanley said.

“Past the iPhone 6 upgrade cycle, we like the long duration of the revenue and earnings growth, in a context of slow global growth,” it added.

MS said ARM’s semiconductor IP business model is the most robust in the European technology sector, with high operational leverage. It noted that ARM receives a 1-3% royalty rate on every chip containing its IP.

Potential catalysts for the stock in coming months include strong second-quarter results and news flow on the traction of iPhone upgrade in the third and fourth quarters.