Arm has a ton of chip demand. There's just one problem.

By Britney Nguyen

Arm's stock falls, with analysts noting the company hasn't yet secured manufacturing capacity for all its fresh CPU demand

Arm's stock was down on Thursday morning following its earnings report.

Investors were initially excited when Arm Holdings said it had twice the demand for its new chip venture as it had just a couple months ago. Now they're worried about how difficult it might be for the company to actually fulfill all that new demand.

The British chip designer (ARM) said on Wednesday that it now has more than $2 billion in customer demand for its new AGI central processing unit through fiscal 2028. What's nagging at investors, however, is that the company hasn't yet secured manufacturing capacity for the project.

See more: Arm puts a big number on its newest venture, but its stock falls

With Taiwan Semiconductor Manufacturing (TSM) being at capacity for its advanced process node and with ongoing memory-chip shortages, TD Cowen analyst Krish Sankar said in a Thursday note that "wafer supply could be the biggest challenge to fully meeting demand through [2028]."

Arm CEO Rene Haas said on the company's earnings call that it has supply of memory chips, wafers, packaging technology and testing equipment to support the $1 billion in customer demand that it reported in March.

The company is "now in the process of securing supply to support" its $2 billion line of sight, Haas said, adding that its "teams are working around the clock to make sure we can find the right answers for our customers."

Building out a CPU business will take time. Arm Chief Financial Officer Jason Child noted that the company is not changing its March-quarter revenue target of about $90 million from the chips.

Seaport Research analyst Jay Goldberg acknowledged the concerns about Arm's capacity but said he "would not read too much into this as the business is brand new." He added that he thinks Arm will be able to get the supply it needs "in time for that revenue to materialize."

Don't miss: Optics is the next big AI bottleneck. This company could be an underrated beneficiary.

The chip venture has commitments from multiple customers, Goldberg said in a Wednesday note. Those include Meta Platforms (META), which is co-developing the CPU with Arm. Altogether, Goldberg expects the customer commitments will triple Arm's revenue in four years.

That growth isn't expected to show up in the near term, however.

William Blair analyst Sebastien Naji noted that "meaningful revenue contribution" from the CPUs won't show up until the end of fiscal 2027, capping upside in the near term.

"Nonetheless, the structural demand backdrop for CPUs remains exceptionally strong - driven by the accelerating shift to agentic AI," Naji said in a Thursday note.

Arm's stock was down about 7% in morning trading Thursday, which Naji attributed to concerns about the limited near-term revenue opportunity.

By the time Arm starts seeing revenue from its CPU business, Seaport's Goldberg said, it "should be launching massive, highly performance chips, and will be charging much higher [average sales prices] for those."

The company's long-term contracts offer "a high degree of certainty" for the chip business, Goldberg said.

"It may take a few quarters to sort through all of this, but the long-term trend is highly positive," he added.

-Britney Nguyen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-07-26 0958ET