One day after Arm Holdings (ARM -8.11%) soared on news of the Stargate artificial intelligence (AI) project, shares of the chip design company known for its energy-efficient CPU architecture were pulling back.

The main reason seemed to be that a closely followed semiconductor newsletter cast doubt on Arm's role in the Stargate project. Additionally, investors were disappointed with earnings results from memory chipmaker SK Hynix, which sent chip stocks down more broadly.

As of 11:49 a.m. ET, Arm was down 7.7%.

Image source: Getty Images.

Is Stargate a win for Arm?

Arm stock jumped yesterday on the news about Stargate, a new AI infrastructure project targeting $100 billion to $500 billion in investment, as Softbank CEO Masayoshi Son was one of the three tech chiefs at the announcement, and Softbank, which owns about 90% of Arm, is in charge of financing the project.

Additionally, a post from OpenAI announcing the project said that Arm was one of five "key initial technology partners," which could bring a windfall to the chip stock.

However, today, the stock was pulling back as investors debated whether the project could be fully funded and its meaning for Arm.

The newsletter Semianalysis also argued that Arm's mention in the press release was mostly window dressing for Softbank's benefit, as Arm's role is limited to its Grace CPU integration as part of Nvidia's components.

Investors also seem to believe that Softbank will have to sell some of its stake in Arm in order to fund Stargate, which could pressure the stock lower.

What it means for Arm

Yesterday's 16% gain for Arm was likely exaggerated, as there's still a lot of uncertainty around the Stargate project, and reaching $100 billion-$500 billion in capital expenditures will be challenging.

Even if Arm's role is limited to part of the Nvidia stack, that could still be significant for such a large project.

At this point, the stock is expensive enough that further gains should have a clear impact on the bottom line. We'll learn more about Stargate and get an update on the business when Arm reports fiscal third-quarter earnings on Feb. 5.

Revenue is expected to increase 15% to $947.2 million, and analysts see adjusted earnings per share up from $0.29 to $0.34.