Arm Stocks Sinks as Analysts See AI Upside but Smartphone Weakness Lingers

Shares of chip designer Arm Holdings (ARM) are sinking at the time of writing despite a Q4 earnings report that topped estimates. In fact, investors seem to be focusing on weakness in the smartphone market, which remains Arm’s core business, and whether or not slower handset-related royalties are temporary or signs of something worse. Still, analysts continue to see a major long-term opportunity in agentic AI, where CPUs may become more important as AI workloads become more complex.

Morgan Stanley’s (MS) four-star analyst, Lee Simpson, said that demand for Arm’s new CPU appears to be building quickly, especially among large enterprise customers. He pointed to the chip’s power-efficient design as a reason why it could benefit from agentic AI workloads. However, he also warned that the limited supply of advanced-node wafers at TSMC (TSM) may slow down Arm’s ability to capture its $2 billion-plus chip opportunity in Fiscal 2027 and 2028. Despite those concerns, Simpson raised his price target to $202 from $191 and noted that Arm’s core IP business is still growing by roughly 20% annually.

RBC Capital Markets (RY) was even more positive, with five-star analyst Srini Pajjuri raising his price target to $260 from $175. He said that Arm now has visibility into $2 billion in AGI CPU revenue over the next two years, although management is still guiding for $1 billion due to supply constraints. RBC also sees smartphone CSS adoption as a continued tailwind and PhysicalAI as an early opportunity, while arguing that Arm’s premium valuation is justified by 20%-plus royalty growth, data center share gains, and a large addressable market.

Is ARM Stock a Good Buy?

Turning to Wall Street, analysts have a Strong Buy consensus rating on ARM stock based on 18 Buys, three Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ARM price target of $243.35 per share implies 11.7% upside potential.