Arm Stock Gets First Sell Rating After IPO. Bernstein Expects It to Plunge.

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Arm Holdings

The stock may be overvalued due to increased competition, a mature phone market and China-related risks, Bernstein says.

On Monday, analyst Sara Russo began coverage

Arm

The stock (ticker: ARM ) has an Underweight rating and a $46 price target, representing a 24% decline from Friday’s close. It was Arm’s first rating on par with Wall Street sales, according to FactSet.

It’s too soon to announce. [Arm as] The winner of AI,” she wrote. “The mobile and consumer end markets account for nearly 60% of revenues and both continue to be challenging.

ARM makes money by licensing its chip architecture and other chip designs to semiconductor companies and hardware makers.

On Thursday, Arm listed for business, pricing its initial public offering at $51 per share, which led to a price increase to a closing level of $63.59. The shares ended Friday at $60.75, down 6.3% at $56.92, following the Bernstein report early Monday.

Arm did not immediately respond to a request for comment on Bernstein’s memo.

The analyst said the open source RISC-V chip architecture is becoming a threat to ARM because manufacturers can use it for free without paying royalties. Referring to the Linux operating system, she pointed out how open source products have been successful in other parts of the computer industry.

“We believe RISC-V is rapidly gaining credibility as an alternative to x86 and Arm for some applications,” Intel said, referring to the x86 chip architecture. “An updated vision for processor architecture must take its viability and long-term availability seriously.”

Arm’s large exposure to China, with 24% revenue, and the rise of RISC-V could threaten the company’s long-term growth rate, he said. Rising tensions between Washington and Beijing, China’s lack of control and China’s preference for using non-Western technologies could be headwinds for the company.

ARM has no direct stake in China. In the year In 2022, ARM transferred 48% ownership to a SoftBank subsidiary and now has no management rights. The company says Arm China will operate independently of it.

Write to Tae Kim at [email protected]