Morgan Stanley$Arm Holdings (ARM.US)$has listed Arm as its new preferred large-cap stock, citing the recovery of the mobile market, new opportunities in edge AI, and the resulting royalty growth. The bank maintains its "shareholding" rating and a target price of $175.

Analysts led by Lee Simpson stated that after the release of the iPhone 16 on Monday and the use of the Arm v9 architecture in the A18 processor, this British company remains their top pick in the emerging edge AI opportunities.$Apple (AAPL.US)$After the release of the iPhone 16 on Monday and the use of the Arm v9 architecture in the A18 processor, this British company remains their top pick in the emerging edge AI opportunities, according to analysts led by Lee Simpson.

Analysts predict that the mobile business will drive growth, followed by infrastructure and automotive business.

Analysts believe Arm is a crucial part of the transition to edge AI. The growth of Arm's royalties is driven by the mobile market (compound annual growth rate of 35% from fiscal year 2024-27), strong momentum in the mid-term for the automotive business, and steady growth in the infrastructure sector. Analysts expect the increasing use of the v9 architecture, coupled with the shift towards more custom chip work, to be a characteristic of mobile business growth.

Simpson and his team also point out that the release of the iPhone 16 indicates that the device is using the Arm-based A-series processor (A18). They believe this could be a core based on Arm v9, potentially utilizing CPU extensions and achieving greater resource balance between the CPU, NPU, and GPU.

Furthermore, the Morgan Stanley analyst team states that Arm is the global leader in chip IP, but as a beneficiary of AI, the company is often overlooked. Morgan Stanley believes that Arm will not only benefit in the mobile CPU space, but the increasing use of custom chips over the next two to three years will also be a powerful driver of Arm's royalty growth (including a shift towards higher royalty rates).

The analyst team stated that the driving factor for custom chip royalties has already come from cloud artificial intelligence (initial quantity), but this will soon shift to a large extent to mobile devices (starting from the fourth quarter of 2025).

ARM can be said to be one of the most important chip companies, as it sells licenses for the core instruction set architecture of almost all global smartphone mobile chips. ARM architecture is mainly used in the smartphone field, but now the frequency of ARM architecture appearing in computers and AI server chips is also increasing. NVIDIA's self-developed Grace CPU is based on ARM architecture, and Amazon's self-developed data center Graviton server processor also uses ARM architecture. Microsoft's latest self-developed customized AI chip Azure Cobalt 100, a server CPU, is also built on ARM architecture and is specifically designed to run cloud computing workloads on Microsoft Azure cloud servers. Therefore, riding on this global AI investment boom, ARM's stock price has risen as much as 70% since the beginning of this year.

Editor/ping