In the wake of its much stronger-than-anticipated FQ3 2024 financial results released earlier this month, Daiwa Capital Markets analysts downgraded Arm Holdings (NASDAQ:ARM) to Neutral from Buy on Thursday.
However, the analysts raised the 12-month target price on ARM to $130 from $63.
“The quarter was very good, as was guidance, showing the power of the company’s strategic positioning and the strength of their model. This supports our positive view from our October 9, 2023 launch,” the analysts said in a note.
“However, given the material share price appreciation post earnings >60%, >$130 since our launch, we are taking a more conservative approach.”
ARM fell 1.2% in premarket trading Friday.
From a broader perspective, Daiwa said it remains very confident in Arm's strategic position within the AI and semiconductor sectors, a sentiment that is incorporated into their revenue growth and margin expansion forecasts.
The decision to downgrade, however, stems from several factors: notably, the rapid and significant increase in the stock's price over a brief period, which may have been partly driven by a short squeeze, and the current valuation.
“Arm is now one of our most highly valued stocks on a PE and PEG basis in our universe,” Daiwa’s note says.