Softbank (SFTBY)-backed Arm Holdings (NASDAQ:ARM) plans to produce artificial intelligence (AI) chips, Nikkei Asia reported. This strategic move comes amid heightened competition in the AI chip arena, spurred by widespread adoption and increasing demand for AI technology. By venturing into AI chip production, Arm aims to capitalize on the fast-growing AI market and accelerate its growth rate.
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As per the report, Arm intends to establish a dedicated AI chip division, with plans to launch a prototype by the spring of 2025. The mass production phase will be outsourced to contract manufacturers and will commence in the autumn of the same year.
The report stated that the initial development expenses will be covered by Arm, with contributions from SoftBank. Moreover, once the mass production infrastructure is in place, Arm could spin off the AI chip business, and it will be integrated into SoftBank’s operations.
Reportedly, SoftBank is in talks with Taiwan Semiconductor Manufacturing (NYSE:TSM) and other companies to secure manufacturing partnerships.
AI: A Key Catalyst for Arm Stock
Arm, known for licensing its chip designs and generating revenue through royalties, has been expanding its footprint in the AI domain. Its stock has gained nearly 45% year-to-date, driven by its solid revenues and backlogs.
In Q4, Arm witnessed a remarkable 47% increase in its top line, driven by robust royalty and licensing revenues. The company’s leadership attributes this growth to increased research and development (R&D) investments in licensing, positioning Arm to seize opportunities in the growing AI space.
Moreover, royalty revenue is poised to benefit from the widespread deployment of arm-based compute solutions across diverse market and product segments.
What Is the Future of Arm Stock?
Arm stock has rallied quite a lot, keeping Wall Street cautiously optimistic about its prospects. Arm stock has a Moderate Buy consensus rating with nine Buy, six Hold, and one Sell recommendations. Analysts’ average price target on ARM stock is $114.54, implying 5.24% upside potential from current levels.
