“While expectations that Arm will be a beneficiary from AI growth may be adding a premium to the share price, we believe it is too soon to declare them an AI winner,” wrote analyst Sara Russo. “With the mobile end market maturing, we think expectations for top-line growth are too optimistic.”
Bernstein is only the third firm to start coverage on Arm, and so far ratings are evenly distributed. Aside from Bernstein’s sell-equivalent rating, New Street Research recommends buying the stock while Needham has a hold rating. Needham analyst Charles Shi wrote that the valuation “looks full.”
Arm’s Monday decline stood in contrast to the sector overall. The Philadelphia Stock Exchange Semiconductor Index rose 0.5%. Among notable gainers, Advanced Micro Devices Inc. added 0.9% and Lam Research Corp climbed 2%.
Arm, majority owned by SoftBank Group Corp., sold US$4.87 billion of shares to the public last week in the year’s biggest IPO.
See also: NTT DC REIT's IPO 4.6 times subscribed
The Cambridge, UK-based company isn’t a traditional chipmaker. It provides semiconductor designs to tech companies and collects royalties from their use. It also licenses the fundamental technology governing how chips communicate with software.
That means it’s a highly influential company with a foothold at every major technology company in the world. The challenge is turning that clout into greater revenue. “We remain more conservative on their ability to deliver increased royalty rates at the pace management is guiding,” Russo said.
