Arm Holdings PLC could soon emerge as a major contender in the market for custom artificial-intelligence chips, and some analysts think the company’s stock is still waiting to benefit from the opportunity.

BNP Paribas analysts upgraded the chip designer’s stock ARM-0.28% to outperform from neutral and raised their price target to $210 from $110 in a Wednesday note. As tech giants continue to raise capital expenditures for AI efforts, the analysts see a natural evolution for Arm to become a maker of application-specific integrated circuit (ASIC) chips — though they noted that the company’s leadership has so far not made any official statements on an ASIC strategy.

Arm didn’t immediately respond to a MarketWatch request for comment.

The London-based company currently licenses out its chip designs, but doesn’t sell its own chips. Arm’s ASIC opportunity could double the company’s earnings before interest and taxes, the analysts said, if it captures just 7% of the total addressable market. They estimate this market will reach $200 billion by 2030; at that rate, the analysts think Arm’s hypothetical ASIC business could bring in between $8 billion and $15 billion in revenue by fiscal years 2030 and 2031.  

Arm’s stock is up about 16% so far this year, and the BNP team sees more “significant upside to be had as the share price is not pricing in the ASIC potential.” Shares were up nearly 5% on Wednesday.

The analysts cited recent news coverage suggesting that Arm may start producing its own ASIC chips as “mounting evidence” that it could be shifting its business. In February, for example, the Financial Times reported that Arm was planning to release a new chip this year that would count Meta Platforms Inc. META+0.41% as its first buyer. 

A move to making ASIC chips would set up Arm as a competitor to its own customers, including Broadcom Inc. AVGO-1.09% and Marvell Technology Inc. MRVL +3.67%.

But even if some of those customers end up “unhappy with Arm becoming a competitor, we think the risk/reward is justified,” the BNP analysts said. They added that designing its own chips would enable the company to “capture more of the AI semi value chain while leveraging a common skill set,” referring to its chip-design engineers.