Wall Street Analysts Bullish on Arm Holdings Despite Mixed IPO Results

Arm Holdings, a chip-design company, recently went public in what was the largest IPO on a U.S. stock exchange since 2021. While the initial results have been mixed, a group of Wall Street analysts is expressing optimism about the company’s future prospects.

Following its listing in mid-September, Arm stock experienced an initial surge but has since dropped back to trade slightly above its original IPO price. This decline can be attributed to the challenging period for tech stocks, as the market factors in higher interest rates. Additionally, initial notes from Wall Street analysts highlighted various risks, including Arm’s exposure to China, reliance on the sluggish smartphone market, and competition from open-source chip architectures.

However, now that the quiet period for analysts from investment banks involved in underwriting Arm’s IPO is over, the bulls have taken the stage. J.P. Morgan analyst Harlan Sur believes that Arm is successfully leveraging its significant developer ecosystem and near 100% market share in smartphones to expand into new sectors such as automotive, industrial/IoT, and datacenters. Sur expects Arm to deliver compound annual revenue growth of 18% over the next three years, driven by its expansion, market-share gains, and higher royalty rates. He has assigned an Overweight rating to Arm stock with a $70 target price.

Citi analyst Andrew Gardiner also sees Arm’s expansion into new areas, particularly the server market, as a positive sign for the company’s growth potential. Gardiner initiated coverage of the stock with a Buy rating and a $65 target price.

One concern surrounding Arm has been its exposure to China, which accounts for 24% of its revenue. The escalating tensions between the U.S. and China in the semiconductor technology sector have raised questions about Arm’s relationship with its independent entity, Arm China, majority-owned by Chinese investors. However, Guggenheim analyst John DiFucci is encouraged by how the two entities have resolved information-sharing issues, considering the relationship as a net positive for Arm. DiFucci initiated coverage on Arm stock with a Buy rating and a $64 target price.

While uncertainties remain, these bullish assessments from Wall Street analysts highlight the potential for Arm Holdings to capitalize on its developer ecosystem and expand into new sectors. Despite the initial mixed results of its IPO, the company’s long-term growth prospects seem promising.