Arm Holdings (ARM) shares declined over 6% on Tuesday after HSBC downgraded the chip designer from Buy to Hold, pointing to foundry capacity bottlenecks that could limit near-term earnings growth. The brokerage raised its price target to $315 from $255, reflecting long-term optimism, but argued that much of the company's growth story is already priced in.
Foundry Constraints Cap Near-Term Upside
HSBC analyst Frank Lee noted that while Arm's entry into merchant server CPUs and higher server CPU royalties could be transformative, investor enthusiasm has already driven the stock significantly higher. Since the company's Arm Everywhere event on March 24, shares have surged 122%, compared to a 57% gain in the Philadelphia Semiconductor Index (SOX) over the same period.
“With management targeting $25 billion of revenue and $9 non-GAAP EPS by fiscal year 2031, we think the shares already price-in strong long-term growth, trading at an expensive 139x/95x 2026e/2027e PE,” Lee wrote. The analyst rolled forward valuation to fiscal year 2029 estimates, which drove the price target revision, but maintained that additional foundry capacity allocation—the primary catalyst for further upside—appears unlikely in the near future.
HSBC Reverses March Double Upgrade
The downgrade marks a reversal from HSBC's stance in March, when it double-upgraded Arm from Reduce to Buy and lifted its price target to $205 from $90. At that time, the brokerage argued that Arm was transitioning from a smartphone-focused licensing company into a major supplier of CPU architecture for AI servers and remained undervalued. The stock has since more than doubled, prompting the more cautious view.
Other Analysts Remain Bullish
Not all brokerages share HSBC's caution. Last month, Bernstein analyst David Dai raised the firm's price target on Arm to $500 from $300 while maintaining an Outperform rating. Dai described Arm as a structural beneficiary of the “renaissance of CPUs for agentic AI,” citing the architecture's power efficiency and the company's evolution from an intellectual property licensor into a CPU developer. TD Cowen also lifted its price target to $475 from $265 while reiterating a Buy rating, reflecting confidence that AI-driven computing demand will continue to support the stock.
For context, other semiconductor-related stocks have also seen analyst upgrades recently. For example, Figma Surges 6% on BofA Buy Rating, AI Monetization Strategy Gains Traction, and Intel Stock Jumps 7% as AI Infrastructure Optimism and Foundry Progress Drive Rally.
Arteris Expands Partnership with Arm
Separately, Arm announced an expanded partnership with semiconductor technology provider Arteris to strengthen processor security. Arteris said Arm will continue integrating its Cycuity Radix technology into processor core development to enhance semiconductor security assurance. Arteris CEO K. Charles Janac said that by leveraging the company's technology, Arm is building more rigorous security capabilities at a time when semiconductor cybersecurity is becoming increasingly important for electronic systems, including data centers. Shares of Arteris rose more than 3% following the announcement.
Arm's stock now trades around $286, implying limited upside to HSBC's revised target. The company's long-term growth story remains intact, but near-term catalysts appear constrained by foundry capacity issues. Investors may also watch broader market trends, such as SK Hynix Surges 11% on $29.4B Nasdaq ADR Plan; AI Memory Rerating in Focus, for signals on AI-driven semiconductor demand.
This article is for informational purposes only and does not constitute financial advice.
