Arm Holdings Plc (NASDAQ:ARM) stock fell Tuesday after HSBC downgraded the stock, adding to pressure from a broader pullback in AI and semiconductor stocks as investors took profits in richly valued names.
The decline came despite mixed analyst commentary, with HSBC turning more cautious even as KeyBanc became more bullish on Arm’s long-term growth prospects.
HSBC Flags Valuation Risks
HSBC analyst Frank Lee downgraded Arm to Hold from Buy while raising his price forecast to $315 from $255. The analyst said enthusiasm surrounding Arm’s expanding role in CPUs has pushed the stock well ahead of fundamentals.
While Lee acknowledged the company’s long-term growth opportunity, he argued that much of that upside is already reflected in the share price, leaving limited near-term upside.
KeyBanc Sees Bigger Server Opportunity
In contrast, KeyBanc analyst John Vinh maintained an Overweight rating and lifted his price forecast to $430 from $300, citing a larger long-term opportunity in Arm-based server CPUs.
Vinh said near-term smartphone demand could remain constrained by memory shortages. However, he expects agentic AI to drive stronger adoption of Arm-based server processors, including NVIDIA Corp. Vera, Amazon.com Inc. AWS Graviton and Alphabet Inc. Google Axion.
He also said Arm’s potential move into designing server CPU silicon for customers could expand its addressable market, supporting as much as $25 billion in revenue and more than $9 in earnings per share by fiscal 2031.
Earnings Outlook
Investors are also preparing for Arm’s next earnings report, scheduled for July 29. Wall Street expects earnings of 36 cents per share, up from 35 cents a year earlier, on revenue of $1.27 billion, compared with $1.05 billion last year.
The stock trades at roughly 352 times trailing earnings, reflecting its premium valuation.
ARM Price Action
ARM Stock Price Activity: Arm Holdings shares were down 6.35% at $279.99 at the time of publication on Tuesday, according to Benzinga Pro data.
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