Prominent Wall Street brokerage firms, including J.P. Morgan and Goldman Sachs, initiated coverage of Arm Holdings with their highest ratings approximately a month after the company’s highly successful market debut. They anticipated that the chip designer would achieve substantial revenue and earnings growth.
However, following Arm’s impressive nearly 25% surge on its Nasdaq debut on September 14, the stock has gradually declined, ultimately closing at $54.08 on Friday, in contrast to its initial public offering (IPO) price of $56.10.
The initial public offering (IPO) involved 30 underwriters, all of whom had to adhere to industry practice by commencing coverage on October 9.
J.P. Morgan, Citigroup, and Goldman Sachs, among others, initiated coverage of the stock with “buy” ratings. They anticipate that it will reach a price range of $60 to $70 by December next year, based on their belief in the ongoing growth of Arm’s chip designs, which are integral to nearly every smartphone worldwide.
J.P. Morgan analyst Harlan Sur is anticipating that Arm will achieve a compounded annual growth rate (CAGR) of over 18% in revenue and 40% in earnings per share (EPS) over the next three years. This growth is expected to result from increased intellectual property (IP) content and gains in market share.
Sur has established a target price of $70, with the expectation that Arm will outperform both the brokerage’s projections and the consensus estimates of the market over the next year.
Deutsche Bank, which also regards the stock as a “buy,” anticipates that Arm’s revenue growth will pick up speed, driven by distinctive factors such as increased royalty rates and market share gains. These factors, combined with margin expansion, are likely to attract investors, according to the analysts.
In contrast, HSBC adopts a more cautious approach and assigns a “hold” rating to the stock. They cite Arm’s relatively high exposure to the mature smartphone market and anticipate that the stock will remain within a certain price range.
At present, there are a minimum of 11 brokerages providing coverage for Arm, based on data from LSEG. The collective rating from these brokerages is generally “buy,” and the midpoint of their price targets is $60.
As per data from LSEG, Arm’s current trading valuation stands at 46.7 times its projected earnings for the future.
Reporting by Roshan Abraham in Bengaluru; Edited by Savio D’Souza.