Shares of Arm Holdings, a CPU manufacturer, are experiencing a significant decline due to concerns regarding its capacity to meet the increasing demand for chips, despite reporting better-than-expected revenue and earnings for the fiscal fourth quarter.
Analysts from Evercore ISI remain optimistic about Arm's future, suggesting that its market capitalization could eventually exceed $1 trillion, aligning it with major tech companies like Nvidia, Apple, Alphabet, and Microsoft.
They attribute this potential to Arm's established position as a standard in various rapidly growing markets, including handsets, AI data centers, the Internet of Things (IoT), and automotive robotics. Currently valued at approximately $209 billion, reaching a $1 trillion market cap would require a fivefold increase.
Evercore analysts highlight Arm's extensive network of suppliers and customers as a key advantage for growth, noting that the company has spent 35 years building its ecosystem, which they consider the most challenging aspect of its business.
However, despite the strong demand for chips driven by AI developments, there are serious concerns about the availability of components, particularly advanced-node wafers from TSMC, which could hinder Arm's ability to capitalize on a projected $2 billion opportunity in the data-center CPU market.
Analysts from Morgan Stanley emphasize that this supply issue is a significant barrier to confidence in Arm's growth potential. Additionally, Deutsche Bank and Barclays have noted that Arm has maintained a conservative revenue forecast of $1 billion for fiscal year 2027 to 2028, despite the promising $2 billion chip opportunity.
Barclays' analyst Tom O'Malley remarked on Arm's cautious approach, indicating that uncertainties regarding supply constraints have prevented the company from increasing its revenue targets. Overall, while Evercore maintains an outperform rating and has raised its 12-month price target for Arm from $227 to $326, the immediate outlook remains clouded by supply chain challenges