The next NVIDIA? Morgan Stanley praises AI chip technology to bring significant revenue growth to ARM

Morgan Stanley analysts believe that due to new transactions in the Chinese market and payments from Apple Inc. (AAPL.US), semiconductor manufacturer Arm Holdings (ARM.US) is expected to achieve higher revenue and profits in the mid-term.

Morgan Stanley has raised Arm's 2026 revenue forecast from $4.85 billion to $4.92 billion and also increased the earnings per share forecast from $2.15 to $2.18. The bank believes that the demand for Compute Subsystems (CSS) will begin to expand from data centers to transactions with Chinese customers, automotive manufacturers, and even the mobile industry.

Morgan Stanley stated, "Given the high associated rates, this will have a significant impact on royalty fees. Due to the uncertainty of timing and scale, we have not yet simulated these royalty fees."

As early as September last year, Apple Inc. signed a long-term agreement with Arm to use Arm's chip technology, extending the agreement until 2040. However, any large payments from this multi-year agreement have not yet flowed into Arm's profit and loss account.

One of the biggest attractions of Arm to investors may be the use of its Neoverse V2 core in Nvidia's (NVDA.US) Grace CPU, but Morgan Stanley remains cautious about the cash flow from this collaboration.

Analysts believe that Arm will receive $35 from each CPU, rather than a share of the overall "block" price (believed to be between $30,000 and $40,000) from the overall division