Semiconductor firm Arm Holdings (NASDAQ: NASDAQ:ARM), which recently went public, has received bullish ratings from several major financial institutions despite an initial 8% drop in its share price since its debut. Analysts from Guggenheim, Citi, JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Barclays (LON:BARC) have all issued favorable assessments of the company's prospects.
On Monday, JPMorgan's Harlan Sur launched coverage on Arm Holdings, issuing an "overweight" rating that exceeds the consensus moderate-buy from 19 reviews. Sur's target for the stock is set at $70 per share for the next year, signaling a potential 29% surge. This optimistic outlook is underpinned by an anticipated revenue compound annual growth rate (CAGR) of over 18% and a 40% EPS CAGR over three years. Other contributing factors include expected market share gains against proprietary systems and a strategic push into high-growth areas such as automotive, IoT, and data center computing.
Bank of America and JP Morgan have also set price targets of $65 and $70 respectively for Arm Holdings. They pointed out the company's unique advantage resulting from increasing complexity in semiconductor design and solid revenue visibility due to its new revenue model focusing on the average selling price of the actual device. They also emphasized Arm's pricing power and potential in the cloud and automotive sectors.
Citi analysts highlighted Arm's rapid sales growth and long-awaited share gains in servers, which they believe warrant a premium valuation. Despite acknowledging risks such as exposure to China, ongoing litigation with Qualcomm (NASDAQ:QCOM), SoftBank (TYO:9984)'s 90% ownership potentially causing volatility, and mixed reception by investors, they noted the company's strong reception on Wall Street and predicted rising royalty rates and licensing agreements as positive signs.
Since its $54 billion IPO in September, Arm's stock has registered a slight uptick. The company's strategic push into high-growth areas like auto, IoT, and data center computing is expected to fuel its performance in the coming years.
InvestingPro data shows that Arm Holdings has a market cap of 1030M USD and a negative P/E ratio of -3.44. It's worth noting that the company's revenue growth has been impressive, with a 53.79% increase in the last twelve months (LTM2023.Q2). However, the company has been dealing with a declining trend in earnings per share, as indicated by the negative basic EPS of -5.58 USD (LTM2023.Q2).
InvestingPro Tips also provides a more detailed picture of the company's financial health. Despite the company's stock price volatility and the fact that it has not been profitable over the last twelve months, Arm Holdings holds more cash than debt on its balance sheet and its liquid assets exceed short-term obligations. This suggests a solid financial foundation that could support the company's ambitious growth plans. For more detailed insights, you can check out more InvestingPro Tips at www.investing.com/pro/ARM.
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