Arm Wins Bullish Wall Street Reviews as Valuation Seen Supported

Wall Street analysts initiated coverage of Arm Holdings Plc.’s stock with mostly bullish appraisals, despite signs that investors have cooled on the chip designer’s shares since its buoyant market debut last month.

(Bloomberg) — Wall Street analysts initiated coverage of Arm Holdings Plc.’s stock with mostly bullish appraisals, despite signs that investors have cooled on the chip designer’s shares since its buoyant market debut last month.

The expiration of the customary quiet period following its initial public offering last month means that analysts at the more than 25 firms — including Barclays Plc, and Goldman Sachs Group Inc. — that participated in the IPO can begin coverage of the chip designer. Monday saw a flurry of upbeat coverage, among some more cautious takes. The stock edged higher in premarket trading.

Barclays analysts led by Blayne Curtis gave the stock an overweight rating. “Arm has become a fundamental building block for the semiconductor industry with an entrenched ecosystem, continued share gains vs. other architectures, and a path to continued content gains,” they wrote in a note. The firm “is positioned to grow as more devices become intelligent and connected.”

Analysts noted that the firm, which has been dominant in cellphone chip space, is now making inroads into the servers segment. “In the more rapidly growing infrastructure space, long-awaited share gains in servers are evident,” Citigroup Inc.’s Andrew Gardiner, who initiated coverage with a buy rating, wrote in a note. He added that Arm sales are growing faster and that “warrants a premium valuation.”

The Cambridge, UK-based company — still 90% owned by SoftBank Group Corp. — 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. The company raised $4.9 billion last month in the largest IPO on a US exchange since Rivian Automotive Inc.’s $13.7 billion offering in November 2021.

Arm’s IPO alongside the debuts of online grocery-delivery firm Instacart and data automation platform Klaviyo has been viewed as a gauge of investor appetite for newly-public companies. Having surged 25% on its market debut, its shares have pared most of those gains to trade about 7% higher than its IPO price of $51. 

Arm Faces Wall Street Review After Biggest US IPO Since 2021 

Still, the firm’s growth potential was a common theme among analyst recommendations Monday. “Smartphones have played a pivotal role in Arm’s ascension as a viable architecture and while we expect this dynamic to hold, we also expect significant growth from other markets such as Infrastructure IT and Automotive,” Guggenheim Securities analyst John DiFucci wrote in a note as he also initiated the stock with a buy rating. 

To be sure, some struck a more cautious tone. BMO Capital Markets Corp. ascribed a market perform — or hold — rating to the stock, with analyst Ambrish Srivastava noting that while he is positive on the company he finds shares “reasonably valued at current levels.”

The shares trade at 52 times projected earnings, more than double that of the Philadelphia Semiconductor Index’s 21 times, data compiled by Bloomberg show. 

Arm has 14 buy ratings, six holds and one sell with an average price target of about $62, according to data compiled by Bloomberg. The stock had already attracted three holds and one sell rating from brokers not bound by the quiet period. 

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(Updates chart and stock moves at open.)

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