ARM Holdings Plc (NASDAQ:ARM) has become one of the key beneficiaries of the AI boom. It has expanded beyond its traditional smartphone business into the fastest-growing cloud and data center markets. The company’s energy-efficient CPU designs are increasingly being adopted by major cloud providers building AI data centers. As ARM continues to grow its presence in the server CPU market, investors are closely watching whether it can continue delivering the growth needed to meet the market’s high expectations.
Photo from Arm Holdings
Analysts Are Cautious Despite Long-Term Server CPU Potential
Those rising expectations are one reason HSBC has become more cautious on the stock. While the firm acknowledged that ARM Holding’s expansion into merchant server CPUs and the potential for higher server CPU royalties could create significant long-term growth, it believes the market has become overly optimistic about that opportunity. Since the company’s “Arm Everywhere” event in March, the stock has significantly outperformed the broader semiconductor market.
According to HSBC, the stock already reflects much of the company’s long-term growth potential. ARM Holdings has historically traded at a premium, and the stock’s current forward P/E of roughly 128 indicates investors are already pricing in a lot of future success, which justifies HSBC’s view.
TSMC Capacity Constraints Add to Near-Term Headwinds
The firm also pointed to foundry capacity constraints at Taiwan Semiconductor Co. as a factor that could limit short-term earnings growth. As a result, HSBC analyst Frank Lee reiterated his Hold rating on ARM Holdings Plc (NASDAQ:ARM) stock on July 30. He also lowered his price target from $315 to $230.
Not everyone on Wall Street is as cautious about ARM Holdings’ outlook. UBS believes the company is well-positioned to benefit from rising demand for standalone CPUs as agentic AI adoption continues to increase. The firm expects ARM’s energy-efficient architecture to become more widely used among hyperscalers, while higher royalty rates could support stronger long-term revenue growth. The firm also raised its outlook for the company’s standalone CPU opportunity, which reflects growing confidence in ARM’s long-term growth potential.
Hedge Fund Interest Rises, But Intel Still Leads in Ownership
At the end of the first quarter of fiscal 2026, 46 hedge funds in our database held positions in ARM Holdings, up from 33 at the end of the fourth quarter of fiscal 2025. Although hedge fund ownership of ARM increased during the quarter, it is still held by fewer funds than Intel, with 112 funds holding INTC stock in their portfolios. Despite UBS’s bullishness on ARM Holdings, institutional investors still prefer Intel over ARM.
While we acknowledge the risk and potential of ARM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ARM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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