An analyst at Bernstein, a company that did not underwrite Arm Holdings PLC’s initial public offering (IPO), has expressed a bearish view on the company’s shares shortly after it went public. The analyst, Sara Russo, highlighted that while there are expectations of Arm benefiting from the growth of artificial intelligence (AI), it is premature to label them as an AI winner. Russo also expressed skepticism about the company’s ability to deliver increased royalty rates as guided by management.
Arm’s U.S.-listed shares began trading on Thursday, closing above their IPO price at $60.75, but have since dropped more than 3% in premarket trading on Monday. Russo initiated coverage with an underperform rating and set a target price of $46 for the chip designer’s shares. She raised concerns about the longer-term royalty outlook for Arm, suggesting that reaching the targeted 5% royalties by FY26 may take longer than anticipated.
Russo also highlighted a potential threat to Arm from RISC-V, an open-source rival to Arm’s technology. She compared RISC-V to Linux in the software market and predicted that specialized companies could build successful commercial operations based on RISC-V, similar to Red Hat in the open-source software space.
FactSet listed Russo as one of three analysts covering Arm’s stock. Another analyst, Charles Shi from Needham, stated that while Arm’s architecture is currently foundational for smartphones, he believes the world is transitioning into a post-smartphone era where high-performance computing and the Internet of Things (IoT) will lead semiconductor growth.
Sources: Bernstein, FactSet