Arm Holdings expanding into AI chips: Right time to buy the stock?

Arm Holdings plc (NASDAQ:ARM) has set the stage for a seismic shift in the semiconductor industry with its bold entry into the realm of artificial intelligence (AI) chips. Recent reports from Nikkei Asia indicate that Arm, a UK-based chip designer under the umbrella of SoftBank Group Corp. (OTCMKTS:SFTBY), is gearing up to unveil its own AI chips as early as 2025.

This strategic move signifies a departure from Arm’s traditional role of licensing chip designs to now venturing into the development and production of cutting-edge AI hardware. The decision to delve into AI chip manufacturing underscores Arm’s commitment to ride the wave of the burgeoning AI computing market.

With plans to establish an AI chip division and initiate prototype development by spring 2025, Arm is poised to disrupt the status quo dominated by established players like Nvidia (NASDAQ:NVDA). By leveraging its expertise in chip architecture and tapping into the growing demand for AI-powered solutions across various industries, Arm aims to carve out a significant foothold in this rapidly evolving sector.

Moreover, the financial backing from SoftBank Group Corp. adds considerable weight to Arm’s foray into AI chip production. With SoftBank’s substantial investment and strategic vision, Arm is well-positioned to navigate the complexities of chip development and manufacturing.

The prospect of Arm disrupting the semiconductor landscape has already sent ripples through the financial markets as the stock is currently trading up over 3% pre-market on Monday. Since its IPO in September 2023, Arm Holdings’ stock has experienced a meteoric rise, reaching an all-time high of $164 in February 2024.

As Arm Holdings continues to make headlines with its ambitious AI chip initiative, investors are left pondering a crucial question: Is now the right time to buy into this tech powerhouse? To provide deeper insights, let’s delve into a technical analysis of Arm Holdings stock to gauge its current trajectory and potential future performance.

Breather in the AI fuelled rally

Arm’s stock saw a sudden and meteoric rise from sub-$80 figures to above $160 after the company reported better-than-expected results for Q3 2024 on February 7. Though after that the stock cooled off a bit, but mostly traded in a $120-$150 range between mid-February and mid-April.

ARM chart by TradingView

After mid-April, amidst carnage in all AI-related stock, Arm’s stock also tumbled from above $120 to a low of $85.61 on April 19th. Since then the stock has made a slow yet steady as it currently trades near $110 and is expected to open above that on Monday.

Traders who are bullish on the stock can buy it today at the open at $112 or above while keeping a stop loss at $97.5. If the stock rallies from here they can book partial profits near $135 and hold the remaining shares for a target above $160.

Although it is not advised to short the stock at current levels, traders who want to do so can go short today above $112 while keeping a tight stop loss a few cents above $120, which was the previous channel support. If the stock doesn’t go above $120 in the coming days, expect it to crash below $90 again soon where they can book profits.

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