Arm Holdings (ARM.US) fell by about 10% after its performance report. Wall Street institutions remain optimistic about its development prospects. Morgan Stanley and RBC have raised their target prices.

UK chip design company Arm Holdings (ARM.US) announced that its performance in the fourth quarter of the 2026 fiscal year exceeded Wall Street's expectations, and it stated that there is strong demand for the new generation of data center CPUs. However, due to market concerns about the outlook for the smartphone business, Arm's stock price initially fell by about 10%. As one of the most important CPU architecture suppliers globally, Arm has long relied on licensing revenue from the smartphone market. However, the recent shortage of memory in the smartphone supply chain has raised concerns among investors about the potential slowdown in the company's core business growth. Nevertheless, several Wall Street institutions remain optimistic about Arm's prospects in the "AI intelligent body" era. Morgan Stanley analyst Lee Simpson stated that demand for Arm's new data center CPUs is growing rapidly, particularly among large enterprise customers. The analyst pointed out that early deployment has been smooth, and the product has high energy efficiency advantages, making it likely to have a broader application in AI workloads for intelligent bodies. However, Simpson also cautioned that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) continued to be a key bottleneck limiting Arm's short-term growth, which also affects the market's confidence in the company's opportunity to surpass $20 billion in the CPU market over the next two years. Morgan Stanley also stated that Arm's core IP licensing business is currently maintaining an annual growth rate of around 20%, mainly benefiting from cloud AI royalty income, large cloud service providers adopting custom CPUs, and increasing penetration rates of DPUs and intelligent network cards. However, the current debate in the market is on how to properly evaluate Arm's future CPU business opportunities while avoiding "double-counting" the demand for AI infrastructure. In addition, investors are also watching whether the recent slowdown in royalty income is just a short-term phenomenon or a signal of a structural change in the business. Nevertheless, Morgan Stanley has raised Arm's target price from $191 to $202. Arm CEO Rene Haas stated in a media interview that AI for intelligent bodies is placing higher demands on CPU computing power, and the company expects to have the largest share in the CPU market by the end of this decade. He also emphasized his confidence in Arm's long-term position in the smartphone market. Meanwhile, Srini Pajjuri, an analyst at Royal Bank of Canada Capital Markets (RBC), is more optimistic, significantly raising Arm's target price from $175 to $260. Pajjuri stated that the management has already seen around $2 billion in revenue opportunities for general AI CPUs in the next two years, but due to supply constraints, the company is currently maintaining its previous revenue guidance of around $1 billion. The institution believes that as the supply chain situation gradually improves, Arm is likely to become one of the biggest beneficiaries of the growing demand for AI-driven CPUs in intelligent bodies. The analyst also pointed out that the transition in the CSS architecture in the smartphone market is a long-term positive, and the "physical AI" field is still in a very early stage.