The Arm Holdings plc ADS (NASDAQ: ARM) stock price was trading down 2.67% during premarket trading as sellers kept pushing prices lower. The company’s shares were trading way above the IPO price of $51 as the stock entered its third trading day.
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Some analysts have expressed concern about all the hype surrounding the stock that once traded above $66 per share on Friday before giving up its gains to fall below $60 today. The company has a lofty valuation, with some analysts concerned about its prospects.
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For example, some of the company’s trading ratios are valued more expensively than Nvidia’s, yet the latter has more AI industry exposure than Arm. Many investors are banking on the company’s pivot towards the AI industry and data centre chips, which is yet to happen, hence the premium pricing.
Some analysts, myself included, are not convinced that Arm shall successfully pivot its business towards AI and away from its traditional smartphone markets, which have been its bread and butter for years. The stagnation being witnessed in the smartphone industry is hurting the company.
Analysts have noted that demand for Arm’s chips in PCs and tablets has also stagnated, which means that the company might have to start gaining market share in the data centre and automotive industry, where it will be a minor player compared to others.
To maintain the current positive momentum around Arm stock, the company has to post impressive results in its next quarter to keep investors happy. If the company reports weak or lacklustre results, it could experience a significant decline in its stock price.
Analysts at Susquehanna Financial Group put Arm’s fair valuation at $48 billion to $50 billion ahead of the company’s listing, even allowing for a premium to other chip stocks. A blockbuster debut doesn’t guarantee continued success.
Given that SoftBank remains Arm’s largest shareholder with 90% of the shares, the company’s future performance will also hinge on how the majority shareholder uses their shares. For example, if the company decides to sell more shares in the future, it could lower stock prices.
Arm stock price.
The Arm stock price was trading down 2.67% at $59.13, falling from Friday’s closing price of $60.75.
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