What’s next for Arm’s share price after the Apple partnership?

Arm doesn’t make chips, but its design is probably in your smartphone.

Apple’s latest iPhone 16 series, with A18 chips powering its AI feature, Apple Intelligence, uses Arm’s latest V9 chip design, the Financial Times reported.

The UK semiconductor company has a multi-year licensing agreement with Apple.

Last year’s iPhone 15 Pro and Pro Max devices, which may also feature Apple Intelligence, were built on Arm’s previous-generation V8 architecture.

Related: Analyst revises Apple stock price target after iPhone 16 launch

Companies such as Apple, Samsung and Nvidia use Arm Holdings’ central processing unit chip architectures. Arm then receives licensing and royalty payments based on the number of products sold.

License income comes from granting the right to use its intellectual property, while royalty income is the ongoing payment of fees based on the use or sales of that IP.

Arm CEO Rene Haas said the V9 chip design earns twice as much royalties as the V8 generation, with estimated rates around 4 percent, compared to average royalty rates of 1.7 percent for previous generations.

This increase allows Arm to claim more revenue from each V9 chip sold.

“As a CFO, it’s one of the best business models I’ve seen. I sometimes joke that those older products are like the Beatles catalog: they keep delivering royalties. Some of these products are three decades old,” Jason Child, Arm’s chief financial officer, told CNBC in an interview.

The stock of arms has doubled this year.

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The stock of arms has decreased this summer

arms (ARM) Fiscal 2025 first-quarter results reported July 31 beat analysts’ forecasts, but shares fell on tepid guidance.

The company earned 40 cents per adjusted share, beating Wall Street expectations of 34 cents. Its revenue of $939 million rose 39%, beating analysts’ consensus estimate of $902.7 million.

Related: Analysts reboot Arm Holdings stock price target following earnings

However, Arm maintained its full-year guidance for adjusted earnings per share of $1.45 to $1.65, with revenue expected to range between $3.8 billion and $4.1 billion. Analysts had expected adjusted earnings per share of $1.58 and revenue of $4.02 billion.

Despite a 40% drop in July and August, Arm stock has more than doubled this year.

Increasing AI activity will continue to drive chip sales in the coming years.

“As the power needs of artificial intelligence continue to grow, so does the demand for Arm’s high-performance, energy-efficient computing platform,” Haas said in a shareholder letter.

Arm a favorite game on the edge of emerging AI, says Morgan Stanley

A month ago, Bernstein upgraded Arm to market perform from underperform, with a $100 price target, up from $92, following a 40% decline.

Bernstein said on August 7 that Arm’s rating needs to be revised, given the 40% drop in the share price in four weeks and more confidence in mobile royalty growth.

Bernstein says V9 products will contribute significantly to the company’s royalties, reaching 40 percent by the end of fiscal 2025. The analyst said Arm was gaining market share in the cloud-computing sector. Given these developments, Bernstein sees the stock’s potential risks and rewards as more balanced at the current price.

Morgan Stanley asserted a positive outlook on Arm stock following the release of the iPhone 16 on August 12 due to the use of Arm’s chip design.

More AI actions:

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“Arm remains a favorite play of the emerging Edge AI opportunity,” said Morgan Stanley analyst Lee Simpson, expecting mobile to grow first, followed by infrastructure and machinery.

Morgan Stanley asserts a $175 price target with an overweight rating on Arm shares.

On September 5, according to TheFly, the investment firm named it a Joint Top Pick along with ASM International (ASMIY) . For ASM International, the analyst lowered the price target to 725 euros ($801) from 800 euros.

And Morgan Stanley affirmed an overweight rating on ASML Holding (ASML) while it lowered its price target for the stock to €925 from €1,000 and removed it as a Top Pick, TheFly reported.

Related: Veteran fund manager sees world of pain coming for stocks