Arm Holdings shares came under pressure following an analyst move by HSBC to downgrade the stock from Buy to Hold, with the bank saying the recent market advance has largely baked in the company’s long-term AI growth prospects.
On Tuesday, Arm closed down 6% at $281.17, then ticked up 0.4% in after-hours trading to $282.26.
HSBC raised its price target on Arm to $315 from $255, a change driven by a roll-forward of its valuation to fiscal 2029 estimates. The bank noted, however, that the new target represents roughly 5% upside relative to Arm’s July 13 closing price of $298.99.
In explaining the adjustment, HSBC pointed to the stock’s strong performance since Arm’s "Arm Everywhere" event in March. The brokerage noted Arm shares have jumped 122% in that span, substantially outpacing the 57% rise in the Philadelphia Semiconductor Index. Investors, HSBC said, have rewarded Arm for signaling an expansion into merchant server CPUs intended for AI data centers.
HSBC emphasized that the rally has exceeded its prior expectations and already reflects optimistic assumptions about Arm’s long-term earnings potential. While the bank expressed a positive view on Arm’s prospects over the longer term, it warned that the scope for near-term earnings upside is limited.
A key constraint identified by HSBC is the restricted availability of 3-nanometre foundry capacity at Taiwan Semiconductor Manufacturing Co. (TSMC). That bottleneck is limiting shipments of Arm’s AI server CPUs, the brokerage said, and it does not expect meaningful additions to capacity until the second half of 2027. HSBC further opined that TSMC is likely to allocate new production capacity in priority order to existing customers.
On valuation, HSBC estimated Arm is trading at 139 times fiscal 2027 earnings and 95 times fiscal 2028 earnings. The bank argued those multiples already internalize management’s ambitious AI roadmap, which includes a goal of $25 billion in revenue and non-GAAP EPS of $9 by fiscal 2031.
Context and market implications
The note from HSBC highlights two intersecting forces: strong investor enthusiasm around Arm’s move into AI server CPUs, and operational constraints related to advanced foundry supply that could delay revenue recognition. The combination is reflected in very high near-term forward multiples, according to the brokerage.
Investors and market participants watching semiconductors and data center equipment will likely view the downgrade as a signal to reassess near-term earnings expectations, while remaining attentive to longer-term targets the company has outlined.