Analyzing Upside: ARM Over Intel, and Back Again (ARMH, INTC, AAPL, MSFT)

If you trust BMO Capital Markets, it looks like ARM Holdings PLC (NASDAQ: ARMH) has more upside than Intel Corporation (NASDAQ: INTC).  In a switch around call, BMO raised ARM Holdings to “Outperform” from a prior “Market Perform” rating.  Intel was downgraded to “Market Perform” from a prior “Outperform” rating.

ARM recently showed its new architecture with 64-bit support and this may allow ARM to make further headway in servers and in the PC markets.  The belief is that Apple Inc. (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT) have both signed on for the newer architecture.  This will make ARM a more prominent competitor of Intel’s and the move should apply to server business as well.

Another possible win may come from set-top box orders as well.  The upside was to 700 pence (versus 572 as of yesterday) in the United Kingdom, implying upside of nearly 22%.  The ARM ADRs are up 1.7% at $28.16 today, but the implied consensus Thomson Reuters price target is only $29.17 in the ADRs.  Intel shares are up with the broader market today but only by 0.3% at $23.98 and the consensus price target is $26.86 for Intel.

Being a new ARM-bull here today is already after a substantial move in ARM.  Intel has also recovered off of lows, but the consensus targets from analysts currently still shows more upside for Intel.  Intel also trades under 10-times earnings estimates versus about 44-times a blended 2011 and 2012 converted earnings estimate for ARM.

The current consensus shows more implied upside for Intel, but that is not the case now for at least BMO Capital Markets.

JON C. OGG