Shares of chip designer Arm Holdings (NASDAQ:ARM) dropped about 12% on Wednesday, April 17. While there was no company-specific news, the decline can be attributed to the broader market sell-off in semiconductor stocks. Investor sentiment towards semiconductor companies soured after ASML Holding (NASDAQ:ASML)(DE:ASME), a company that provides machines to build chips, reported a nearly 61% sequential decline in net bookings in Q1. This decline highlights ongoing challenges in the semiconductor industry, dampening hopes for a quick recovery.
Alongside ARM, shares of Qualcomm (NASDAQ:QCOM), Nvidia (NASDAQ:NVDA), Micron (NASDAQ:MU), and Advanced Micro Devices (NASDAQ:AMD) fell 2.5%, 3.9%, 4.5%, and 5.8%, respectively. Yet, the substantial decline in ARM stock compared to other semiconductor firms could be due to concerns regarding its valuation.
ARM stock trades at a forward EV (Enterprise Value)/Sales multiple of 38.8, much higher than the sector median of 2.76. Moreover, its forward price/earnings (P/E) ratio of 101.65 shows a significant premium to the sector median of 23.59. It’s worth noting that Bernstein analyst Sara Russo reiterated a Sell rating on ARM stock in February, citing valuation concerns. Her price target of $72 implies 33.1% downside potential from current levels.
Is ARM a Buy or Sell?
ARM is likely to benefit from higher royalty rates due to the increased adoption of its new products. Moreover, market share gains in the cloud server and automotive segments, and overall AI-led demand are encouraging. However, its stock is up about 77% (including yesterday’s significant decline) in one year, keeping analysts cautiously optimistic about its prospects.
ARM stock has 12 Buys, six Holds, and one Sell recommendation for a Moderate Buy consensus rating. Analysts’ average price target on ARM stock is $108.75, implying 1.11% upside potential from current levels.
If you’re wondering which analyst to follow to buy and sell ARM stock, Goldman Sachs’ Toshiya Hari is the most accurate analyst covering the stock in a one-year timeframe, according to TipRanks. Copying Hari’s trades on ARM stock and holding each position for one year could result in 100% of your transactions generating a profit, with an average return of an impressive 89.80% per trade.
