It’s time to move to the sidelines in Arm stock – analyst says

Arm Holdings PLC (NASDAQ: ARM) ended in the red on Tuesday after a New Street Research analyst issued a dovish call on the chip design company.

Arm shares have more than doubled already

Pierre Ferragu downgraded the Nasdaq-listed firm this morning to “neutral” citing an “unattractive risk-reward” now that its shares have more than doubled since the start of this year.

He agreed that $ARM could trade at up to 40 times fiscal 2028 EBIT if the semiconductor behemoth performed at the “top of its game” – but opted for a dovish stance since Arm stock is already trading above that level at writing.

New Street Research’s call on the British company arrives only weeks after it reported a blockbuster fiscal third quarter and issued impressive guidance for the future.

Arm stock valuation is hard to justify

Pierre Ferragu warned clients against holding Arm stock today because its valuation can only be justified if it tops quarterly expectations by 50% at least.

We would see a rationale to buy the stock today only if it can deliver a 15% return. Even with a 40x forward multiple in 2027, we don’t see that possible with the stock above $110.

Note that Arm chips power almost every smartphone in the world. Among the company’s prominent customers are Microsoft, Apple, Google, and even Nvidia Corp.

Rene Haas – the chief executive of Arm Holdings PLC expects continued focus on artificial intelligence to be a meaningful tailwind for $ARM.