Macquarie weighs in By Investing.com

Arm Holdings (NASDAQ:), a subsidiary of SoftBank’s Group, is set to delve into the development of AI chips, aligning with CEO Masayoshi Son’s vision to evolve the conglomerate into a leading AI entity.

According to a report by Asia Nikkei, the company plans to establish a new division for AI chips, aiming to produce a prototype by spring 2025 and start mass production by the fall of the same year using contract manufacturers. The initiative forms part of SoftBank’s ambitious 10 trillion yen ($64 billion) investment in AI technologies.

Shares in ARM rose 3.6% ahead of Monday’s market open.

Currently, Arm dominates the smartphone processor architecture market, holding over a 90% share. The company, primarily owned by SoftBank with a 90% stake, will handle the initial development costs, which are projected to be in the hundreds of billions of yen, the report states/

SoftBank will also contribute financially to this endeavor. There is potential for the AI chip business to be spun off into a separate entity under SoftBank once mass production is operational.

“SBG’s interest in a seemingly fully vertically-integrated supply chain — from IP to compute to renewable power to ultimately DC capacity — is quite bold,” analysts at Macquarie commented in a note.

“It could potentially be seen as sidestepping clients in semis development, and their clients in DC development,” they added.

Considering that Arm will play a central role in SoftBank’s plan, analysts at Macquarie believe that the conglomerate’s ownership of the chipmaker will remain stable in the near term, with the potential for additional asset-backed financing to support data centers and renewable energy projects.

They also note that expenses at Arm could fluctuate as the company develops a new product for fabrication within the next 18 months.

“This could affect SBG shares if ARM shares are volatile. On whether clients will take new products in a different direction away from Arm, we think this is unlikely given the dependence on Arm’s RISC architecture for mobile and IoT, or at least not near term,” the team at Macquarie noted.

“We think other SBG portcos may be monetized more quickly now though to generate cash to capitalize on this opportunity,” they added.

SoftBank is already in talks with Taiwan Semiconductor Manufacturing (TSM) and others to secure production capacity. Plans are also underway for SoftBank to establish data centers across the U.S., Europe, Asia, and the Middle East by 2026, utilizing these AI chips.

Given the substantial energy needed to run these data centers, SoftBank also intends to build wind and solar farms, as well as potentially fusion technology.