Arm shares slide 6% after HSBC flags foundry bottlenecks

Arm Holdings shares dropped more than 6% on Tuesday after HSBC cut its rating to Hold, saying limited foundry capacity will restrict near-term revenue and profit gains. The bank raised its price target to $315 from $255 but warned that much of Arm’s growth appears priced into the stock.

HSBC analyst Frank Lee wrote that investor enthusiasm around Arm’s merchant server CPU ambitions and higher server CPU royalties has driven a sharp re-rating since the company’s Arm Everywhere event on March 24. Lee noted the shares have climbed about 122% since that event, compared with a 57% gain for the semiconductor index over the same period.

The brokerage rolled its valuation forward to fiscal 2029 and cited Arm management’s targets of $25 billion in revenue and $9 non-GAAP earnings per share by fiscal 2031. HSBC pointed to high price-to-earnings multiples, roughly 139x for 2026 estimates and 95x for 2027 estimates, and said additional foundry allocation would be the main catalyst for further upside but appears unlikely soon.

Other firms have taken different views. Bernstein raised its price target to $500 from $300 and kept an Outperform rating, highlighting Arm’s power-efficiency advantage and its shift toward developing server CPUs. TD Cowen increased its target to $475 from $265 while maintaining a Buy rating, citing confidence that demand for AI-driven computing will support Arm’s business.

Separately, Arm expanded a partnership with semiconductor technology provider Arteris to integrate Arteris’s Cycuity Radix security technology into Arm’s processor core development. Arteris said the collaboration will strengthen semiconductor security assurance for electronic systems, including data centers. Arteris Chief Executive K. Charles Janac described the integration as helping Arm build more rigorous security capabilities. Shares of Arteris rose more than 3% after the announcement.

HSBC had upgraded Arm in March from Reduce to Buy and raised its target to $205 at that time. The stock’s rapid rally since late March has left analysts split between those raising price targets on expected AI-driven CPU demand and those warning that supply constraints at foundries could limit near-term monetization.