Arm stock could be cut in half over the next 12 months – analyst warns

Arm Holdings PLC (NASDAQ: ARM) has nearly doubled since the start of this year but a Morningstar analyst warns its current valuation is not sustainable.

Arm stock could tank to $57

Javier Correonreo sees downside in the chip design company to $57 – a price objective that assumes 17% yearly growth rate over the next ten years.

The analyst is super bearish on Arm stock because he’s convinced the AI narrative coupled to it is rather “exaggerated”.

Correonreo finds artificial intelligence “ancillary” only for $ARM and, therefore, expects its related earnings growth to be no where even “close to that of Nvidia”.

Note that Arm Holdings does not pay a dividend yield at writing either.

Why else is he dovish on $ARM?

Javier Correonreo agreed that an increase in royalty rates like the one Arm executed recently is a short-term benefit for its stock price.

If overdone, however, customers would push back and look for cheaper alternative, he told clients in a research note on Tuesday.

It is also worth mentioning here that the Morningstar analyst is not alone in seeing downside in Arm shares. While Wall Street does currently have a consensus “overweight” rating on $ARM – the average price target sits at $110 only which indicated about a 15% downside from here.

Nonetheless, Arm Holdings reported a strong fourth quarter and issues impressive guidance for the future in February (find out more).