Bernstein analysts lower rating of Arm Holdings, calling valuation "too steep"

Investing.comOct 31, 2024 2:58 PM

View all comments（0）



Investing.com -- Analysts at Bernstein have downgraded their rating of Arm Holdings (NASDAQ:ARM) to "Underperform" from "Market-Perform," citing concerns about near-term "cyclical headwinds" facing the chip designer.

The analysts added that while the long term equity story remains "very appealing," there are still worries around the revenues Arm can generate outside of artificial intelligence given a host of issues facing firms in sectors like automaking and technology. These industries rely on processors often made using Arm's designs.

"Putting all of this together, we do not believe that Arm is immune to these cyclical headwinds when it comes to royalties, specifically -- although the long term story remains very attractive in our view," the analysts wrote.

For the upcoming quarterly results due out on Nov. 6, they subsequently cut their expectations for royalties and licensing. UK-based Arm generates royalties through each chip sold using its technology and also charges licensing fees for its semiconductor designs.

The analysts slashed their fiscal year 2025 top-line target for the company as well. They added that Arm's stock valuation of 45 times 2026 fully-diluted earnings per share is "too steep."

In a note to clients on Thursday, the analysts led by Sara Russo noted that Arm's share price has climbed by nearly 40% since they last upgraded the stock almost a quarter ago.

Arm's shares have recovered from a slide in late July sparked by a conservative revenue outlook, which exacerbated investor fears that returns from a rush of spending on AI would be slower to materialize for the company than other semiconductor firms like Nvidia (NASDAQ:NVDA) or Advanced Micro Devices (NASDAQ:AMD).

Speaking in a conference call after the announcement, CEO Rene Haas flagged that it can about four years for Arm to realize windfalls from AI server chip designs it has licensed this year.

Shares in SoftBank-backed Arm sank by more than 6% in early US trading on Thursday, although the stock price has more than doubled so far this year.

(Reuters contributed reporting.)

Disclaimer: The information provided on this website is for educational and informational purposes only and should not be considered financial or investment advice.

Comments (0)

Click the $ button, enter the symbol, and select to link a stock, ETF, or other ticker.

Commenting Guidelines

Recommended Articles

Today’s Market Recap: Broadcom and Nvidia Lead Tech Gains, Oil Prices Surge, Gold Under Pressure

TradingKey - On July 8, Eastern Time, US stocks showed divergent performance. Escalating conflicts between the US and Iran pushed energy prices back up, fueling market concerns over sticky inflation and the Federal Reserve's policy path, which dragged down the Dow Jones Industrial Average and the S&

NVIDIA (NVDA) Stock Forecast: DeepSeek Building Its Own Chip - Is $197 the Bottom?

Reuters says DeepSeek is building its own AI chip to cut ties with Nvidia. NVDA slipped 2% on the news but still holds $197. The chart has flipped to a long setup. 61 analysts Buy at $301 avg target.

Japan and South Korea Stocks Surge at Open: Nikkei 225 and Kospi Soar Together, SK Hynix and Kioxia Jump 8%, Samsung and SoftBank Follow

Japanese and South Korean stock markets opened higher and continued to rise, with the KOSPI Index and the Nikkei 225 index gaining to varying degrees. SK Hynix and Kioxia surged by approximately 8%, while Samsung Electronics and SoftBank tracked the gains.

US Stocks Close: Dow Plunges 1.09%, Nasdaq Rises Against Trend, Philadelphia Semiconductor Index Gains Over 2%; Trump Announces End of US-Iran Ceasefire Agreement, Some Fed Officials See Need for Rate Hike.

TradingKey - Donald Trump publicly stated that he has no intention of resuming any agreement negotiations with Iran, dampening market trading sentiment. The three major US stock indexes diverged, with the Dow Jones Industrial Average taking a hit, the Nasdaq Composite rising, blue-chip stocks declining, and memory chip stocks rebounding. At the close, the Dow Jones Industrial Average fell 1.09% to 52,348.39 points; the Nasdaq Composite Index rose 0.20% to 25,870.65 points; and the S&P 500 Index fell 0.28% to 7,482.71 points.

FOMC Minutes: Fed Shifts to Neutral Wait-and-See Stance, a Few Officials See Need to Raise Rates, Upside Inflation Risks Become Core Conflict

The Federal Reserve released the minutes of its June 16-17 FOMC monetary policy meeting on July 8. The document shows that the Fed's policy has completely shifted to a neutral, wait-and-see stance, with upside risks to inflation becoming the core contradiction. This FOMC meeting sent a clear signal that the Fed has completely moved away from its previous unilateral rate-cut bias and entered a period of two-way, flexible policy observation. Higher-than-expected inflation stickiness and its broadening scope are the core reasons for this policy shift, while the resilience of employment and growth provides room for flexible policy adjustments. Officials confirmed a further rise in inflation, noting that pressures are no longer confined to exogenous factors such as energy and tariffs. Instead, price increases have spread across a wide range of categories including transportation, airfares, and oil, with service inflation excluding housing showing almost no improvement. In the short term, as shipping through the Strait of Hormuz recovers and the marginal effects of tariffs fade, inflation is expected to decline gradually.

Featured Tools