Banks bullish on Arm one month on from Nasdaq float
Shares in Arm jumped in early trading today after a number of major US banks issued a ‘buy’ rating for the stock just one month after the British chip designer floated on Nasdaq.
Arm’s stock is currently settled at $55.65, slightly below the $56.10 price it initially traded at, although it surpassed $63 by the end of its first day of trading.
The consensus on the Nasdaq newbie is bullish, as JP Morgan, Goldman Sachs, Deutsche Bank and Citigroup have all awarded ‘buy’ ratings to Arm’s stock, forecasting it to hit between $60 and $70 by the end of next year.
The Cambridge-based company, which designs semiconductors for tech giants such as Apple, Samsung and Intel, made a splash with a nearly 25 per cent surge on its debut in September.
Due to industry practice, banks had to bide their time until 9 October before they could begin their assessments of Arm.
But, “now the floodgates have opened, the general view seems to be positive,” said Richard Hunter, head of markets at Interactive Investor.
He added: “General themes emerging from US broker comments are an expectation that the company will continue its growth as a provider of chip designs which power the majority of smartphones globally.
“Higher market share gains and increased intellectual property content are also in focus, while high royalty rates could add to profit margins.”
At least 17 brokerages are covering Arm, with an average ‘buy’ rating and a median price target of $63.50.
“Banks have come out of a blackout period,” said Ben Barringer, equity research analyst at Quilter Cheviot, and the buoyant reaction is “positive but not uncommon”.
More importantly though, he said, it is about “how [Arm] executes to get that re-acceleration of revenue growth.”
“This year, they’re not going to see much revenue growth. I think probably three to five per cent, and then it’s going to accelerate next year as the smartphone market recovers,” Barringer explained.
He suggested the underlying macro-environment boosting smartphone recovery, long-term market share gains and increased sales will drive this acceleration.
According to technology research firm Counterpoint, the global smartphone market declined for the eighth straight quarter, down eight per cent year on year.
Arm shares climbed nearly three per cent on Monday, but drooped in the afternoon.