(Bloomberg) -- US-listed shares of Arm Holdings PLC fell 4.5% in premarket trading after Bernstein lowered its view on the chip-design company — one of the biggest winners of this year’s artificial intelligence spending boom.
Analyst Sara Russo cut her view to underperform from market perform, becoming a rare analyst with the equivalent of a sell rating on the stock. Her $100 price target represents downside of more than 35% from Arm’s last close.
“The long term equity story remains very appealing,” she wrote, “but at what price?” Given the stock’s year-to-date strength and valuation, “we struggle to find upside.”
Shares have more than doubled this year, making Arm the third-best performer in the Nasdaq 100 Index as of Wednesday’s close. Nvidia Corp., the chipmaker at the heart of the AI boom, is another major gainer. The index itself is up 21%, while the Philadelphia Stock Exchange Semiconductor Index has risen 23%.
Much of the strength reflects the company’s position with AI. Last quarter, Arm’s revenue was much stronger than expected, although the firm disappointed by failing to raise its forecast.
“It is well understood that most things AI are holding up fine,” Bernstein wrote. “For FY25, we worry about the revenues outside of AI, given the cyclical headwinds our analog names are facing, especially ex-memory.”
Valuation has been a concern for Arm investors. The stock trades at more than 35 times estimated revenue, making it the most expensive in the Nasdaq 100 by this metric.
Fewer than 10% of the firms tracked by Bloomberg have a bearish view, compared with nearly 60% that recommend buying. The average price target points to downside of 10% over the coming 12 months.
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