Arm Stock in Focus After Reportedly Planning to Launch AI Chips

Shares in UK-based chip design giant Arm Holdings (ARM) will be in focus on Monday after Nikkei Asia reported Sunday that the company plans to develop artificial intelligence (AI) chips, aiming to launch its first porotype in early 2025.

According to the report, Arm—in which Japan’s SoftBank (SFTBY) owns a 90% stake—will establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.

Arm will fund the majority of the initial development costs, expected to be billions of yen, with Softbank also contributing, the report said. Once up and running, the AI chip business could be spun off under SoftBank.

The Japanese financial giant has already commenced negotiations with Taiwan Semiconductor Manufacturing (TSM) and other chipmakers as it looks to sure up production capacity, Nikkei Asia reported.

Arm Continues Push into Lucrative Datacenter Market

Arm, which makes money by selling royalties on its chip designs, has continued its push into the lucrative AI datacenter market, where tech behemoths such as Microsoft (MSFT), Meta (META), Alphabet (GOOGL), and Amazon (AMZN) have announced plans to build their own in-house chips to power their AI computing requirements, helping to reduce their reliance on AI chip supplying giant Nvidia (NVDA).

Since going public in September last year, the company’s shares have more than doubled from their $51 initial public offering (IPO) price as investors place bets that the chip designer can capture a sizable slice of the AI infrastructure market. Precedence Research of Canada expects the AI chip market to grow from $30 billion this year to $200 billion by 2032.

Monitor These Levels Amid Breakout From Rising Wedge

The Arm share price has traded within a narrow rising wedge since mid April—a chart pattern technical analysts typically interpret as having a bearish bias because it indicates an easing of buying momentum. In the short-term, the price may continue to oscillate in the wedge until the downward sloping 50-day moving average catches up with the pattern’s top trendline before the stock makes its next significant move. 

Amid a move lower, investors should monitor the $79 level, an area where the price may find buyers near the February pre-breakout level. However, if the price climbs above the wedge, it’s worth keeping in mind that the stock could make another attempt at testing key overhead resistance near prior price action around $145.

Arm shares closed trading last week at $108.84, after gaining 5.1% during Friday’s session.

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As of the date this article was written, the author does not own any of the above securities.