Morgan Stanley says there’s an AI opportunity investors are missing

Semiconductor manufacturer Arm Holdings may be a key player in the rise of “edge AI,” according to Morgan Stanley. Edge AI refers to deploying AI models and machine learning on local devices, such as sensors or Internet of Things devices, rather than on the cloud. According to analyst Lee Simpson, “this will require real time processing, support for small language models (SLMs) and secure compute across a range of end markets. Being able to scale compute efficiently, with a large number of licensee partners and a huge developer community means Arm [is] well-positioned to capture value.” With this in mind, Simpson upgraded Arm Holdings to overweight from equal weight. He also hiked his price target to $190 from $107, implying 20% upside potential from Thursday’s close. The growing edge AI landscape gives the company opportunities throughout smartphones, auto vehicles and even in AI PCs, said Simpson. Arm is already in a “strong position” for developing edge AI-focused custom chips for the mobile and auto sectors, per the analyst. In particular, the rise of chips in auto vehicles is a significant opportunity, Simpson believes, forecasting auto royalties to soar to $1.1 billion by 2030. He also forecasts Arm capturing 42% of the serviceable market for smartphone royalties in the 2027 fiscal year. “We think of Arm products as fundamental to the successful emergence of edge AI,” Simpson said. Arm shares have more than doubled this year. On Friday, they ticked up another 2%. ARM YTD mountain ARM year to date