MW Arm's stock is falling, as Morgan Stanley throws cold water on all the Wall Street hype
By Hannah Pedone
An analyst says ongoing Qualcomm litigation and a thornier competitive backdrop are among factors that could hinder a sustained rally for Arm shares
Morgan Stanley's Lee Simpson just downgraded shares of Arm Holdings to equal weight from overweight.
Arm Holdings' stock is up nearly 40% from its February lows, but a Morgan Stanley analyst is arguing that further momentum may be harder to come by.
The recent rally relates to enthusiasm around Arm's $(ARM)$ newly announced push to start selling its own central processing units. The move sets Arm up to meaningfully expand its business beyond licensing and royalties associated with chip designs, and it also positions Arm to capitalize on the hot CPU market in a new way.
And while Morgan Stanley's Lee Simpson said the move is "strategically sound," he lowered his rating on Arm's stock to equal weight from overweight on Tuesday, citing several factors that could get in the way of a sustained rally. The downgrade comes after several analysts moved to upgrade Arm shares in recent weeks.
Arm's stock is down roughly 6% in midday action on Tuesday.
One of Simpson's worries relates to the industrywide shortage of dynamic random-access memory chips, which he said could pressure Arm's royalty business. With DRAM prices rising and the chips in short supply, consumer-electronics companies that rely on those chips might have trouble making enough devices to satisfy customer demand. Such a scenario would reduce the royalties that Arm collects from the sale of electronics that use its chip designs.
Another core concern for Simpson is Arm's ongoing litigation proceedings with Qualcomm $(QCOM)$, which recently resulted in a ruling that Simpson said could inhibit Arm's ability to charge higher royalty rates. A second round of litigation between the companies could pose additional risk for Arm, he said.
Read more: There's a new ETF for memory stocks. History suggests that might be an ominous sign.
Simpson also said that Arm's shift into the CPU business could put the company in competition with its own customers, chip makers who use the company's designs. He said that while customers like Nvidia (NVDA) and Apple $(AAPL)$ already have long-term licensing agreements with Arm that will likely remain intact, other customers who make CPUs could seek to reduce their reliance on Arm.
"While the long-term case remains compelling, the transition carries execution, competitive and cyclical risks," he wrote.
See also: Arm's stock could rocket 50% as Wall Street wakes up to a 'game-changing' trend, analyst says
-Hannah Pedone
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April 07, 2026 12:18 ET (16:18 GMT)
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