Arm’s shares receive support from IPO banks’ ratings.
Arm Holdings Shares Rise on Wall Street Analysts’ “Buy” Ratings
By Aditya Soni and Roshan Abraham
October 9, 2023 – 8:08 AM PDT
Shares of Arm Holdings rose 3% on Monday after a wave of “buy” ratings from Wall Street analysts who said that the chip designer’s dominance in the smartphone market and potential for expansion into data centers could power earnings growth.
The flurry of recommendations marked the end of the quiet period for the nearly 30 banks that underwrote Arm’s initial public offering, which raised $4.87 billion for owner SoftBank Group last month in the biggest listing of the year.
The “buy” or equivalent ratings, from brokerages including J.P.Morgan and Goldman Sachs, are a vote of confidence in Arm’s plan to grow revenue by charging higher royalty fees and increasing its share of the cloud and automotive markets.
Before Monday, only those brokerages that did not work on the IPO were allowed to offer recommendations on the stock, and their opinion was more skeptical due to concerns about the slump in the smartphone market and Arm’s diversification efforts.
Three of them had a “hold” rating on the stock and one “strong sell,” LSEG data showed.
The British company gets most of its revenue from the smartphone market, in which it has a 99% share across Google’s Android and Apple’s iOS devices.
Goldman Sachs said on Monday it expected “Arm to not only expand on its presence in the smartphone market primarily through higher royalty rates, but to also extend its reach across applications to which it is under-indexed.”
The brokerage and others including Citi, Deutsche Bank and TD Cowen set price targets in the range of $57 to $85, with the most bullish view coming from Rosenblatt Securities. Arm shares last closed at $54.08, compared with the IPO price of $51.
The stock was last up 2.8% at $55.56 on Monday, while the Philadelphia Semiconductors index (.SOX) slipped more than 1%.
TD Cowen said Arm faces some challenges from the weak smartphone market, but its current revenue represented an “under-monetization of its importance to the industry”.
Citi predicted that Arm could become one of the fastest-growing large chip companies with a compounded annual revenue increase of 18% through fiscal year 2027.
Such growth would benefit SoftBank, which told investors ahead of the Arm IPO that it plans to remain the majority owner in the company it considers its crown jewel.
But some brokerages, including HSBC, urged caution, saying Arm’s shares could remain range-bound as uncertainty over a smartphone market recovery pressures earnings.
At least 17 brokerages started covering Arm, with an average rating of “buy” and a median price target of $63.50.
Reporting by Roshan Abraham in Bengaluru; Editing by Savio D’Souza, Anil D’Silva and Shounak Dasgupta
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What are the main challenges facing Arm Holdings in the smartphone market, and how might these challenges affect its future earnings
Arm Holdings, the chip designer, experienced a 3% increase in shares on Monday following a series of “buy” ratings by Wall Street analysts. These analysts believe that Arm’s dominance in the smartphone market and its potential for expansion into data centers will contribute to the company’s earnings growth.
This surge in recommendations coincides with the end of the quiet period for the nearly 30 banks that underwrote Arm’s initial public offering (IPO). The IPO, which raised $4.87 billion for owner SoftBank Group, was the largest listing of the year. The “buy” or equivalent ratings from brokerages such as J.P.Morgan and Goldman Sachs indicate confidence in Arm’s strategy to increase revenue through higher royalty fees and a larger market share in the cloud and automotive sectors.
Previously, only brokerages that did not participate in the IPO were allowed to give recommendations on Arm’s stock, and their opinions were more skeptical due to concerns about the decline in the smartphone market and Arm’s diversification efforts. According to LSEG data, three brokerages had a “hold” rating on the stock, and one had a “strong sell” rating.
Arm Holdings primarily generates its revenue from the smartphone market, where it holds a 99% market share across Google’s Android and Apple’s iOS devices. Goldman Sachs expects Arm to expand its presence in the smartphone market by increasing royalty rates and extend its reach into other applications where it is currently under-indexed.
Several brokerages, including Citi, Deutsche Bank, and TD Cowen, have set price targets ranging from $57 to $85. The most optimistic view comes from Rosenblatt Securities. Arm shares closed at $54.08, compared to the IPO price of $51. On Monday, the stock was up 2.8% at $55.56, while the Philadelphia Semiconductors index slipped more than 1%.
TD Cowen acknowledges that Arm faces challenges from the weak smartphone market but states that its current revenue is an under-monetization of its importance to the industry. Citi predicts that Arm could become one of the fastest-growing large chip companies, with a compound annual revenue increase of 18% through fiscal year 2027.
This growth would benefit SoftBank, which plans to remain the majority owner of Arm and considers it a crown jewel. However, some brokerages, including HSBC, urge caution, suggesting that Arm’s shares could remain range-bound due to uncertainty about a smartphone market recovery and its impact on earnings.
At least 17 brokerages have started covering Arm, with an average rating of “buy” and a median price target of $63.50.
In conclusion, the recent “buy” ratings from Wall Street analysts have contributed to the rise in Arm Holdings’ shares. The company’s dominant position in the smartphone market and potential for expansion into data centers are seen as drivers of future earnings growth. However, some caution remains due to challenges in the smartphone market and uncertainty about its recovery. Overall, the outlook for Arm Holdings appears positive, as evidenced by the majority of brokerages giving a “buy” rating and setting price targets above the current share price.
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