Monday, HSBC has downgraded Arm Holdings (NASDAQ: NASDAQ:ARM) stock from Hold to Reduce. The firm indicated concerns over the company's stock performance and valuation, noting that despite Arm's strong potential in the tech sector, its shares have seen an excessive increase in value year-to-date.
Arm Holdings, recognized for its potential growth due to increased royalties from smartphones and AI market expansions, has seen its stock price climb by 116% since the start of the year. HSBC pointed out that Arm's forward price-to-earnings ratio for the fiscal year ending March 2026 is now at 72 times, which is substantially higher than its peers in the large-cap semiconductor space.
The firm's analyst mentioned the upcoming first-quarter 2025 results, set to be released on July 31, as a potential point of concern. HSBC anticipates that there might be short-term earnings risks for Arm Holdings, primarily due to a possible deceleration in the Android smartphone market and a less optimistic outlook on the AI sector than previously projected.
HSBC's decision to downgrade Arm Holdings reflects caution ahead of the company's earnings report. The firm's analysis suggests that the current market valuation may not fully account for the challenges that Arm could face in the near term, such as the anticipated slowdown in certain technology segments.
In other recent news, Arm Holdings has been the focus of several financial firms' attention. Morgan Stanley (NYSE:MS) upgraded Arm Holdings from Equalweight to Overweight, raising the price target to $190 based on the company's prospects in the Edge AI sector. BofA Securities also increased its price target to $180, citing potential growth from the company's v9 architecture and market share gains.
Arm Holdings reported an impressive 47% increase in revenues year-over-year for Q4 of fiscal year 2024. The company projects over 20% revenue growth in the upcoming year, aiming to reach $4 billion in revenue. However, the forecast for fiscal year 2025, with Q1 revenue set at $900 million and full-year revenue projected at $3.95 billion, did not exceed investor expectations.
The company's inclusion in the Nasdaq-100 Index is another significant development, reflecting its growing influence in the technology sector. Rosenblatt Securities maintained a Buy rating on Arm Holdings, while Bernstein SocGen Group raised the price target from $72 to $92 but maintained an underperform rating. These are the recent developments for Arm Holdings.
InvestingPro Insights
Amid the HSBC downgrade, Arm Holdings has been a subject of intense scrutiny. Real-time data from InvestingPro shows a market capitalization of $155.01 billion, with a staggering P/E ratio of 509.08, highlighting the concerns HSBC has raised regarding the company's valuation. Despite the recent stock price volatility, with a one-week price total return of -8.9%, the long-term perspective reveals a substantial 134.31% return over the last year, which could indicate investor confidence in the company's growth trajectory.
InvestingPro Tips suggest that while Arm Holdings has experienced a significant hit in its stock price over the last week, analysts predict profitability this year, and the company has shown strong returns over the past three months. These insights could be crucial for investors considering whether the recent dip presents a buying opportunity or if caution should prevail ahead of the upcoming earnings report.
For those looking to delve deeper into Arm Holdings' financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/ARM. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and access a wealth of expert analysis and tips, including 15 more insights on Arm Holdings that could help inform your investment decisions.
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