Source: Wise Finance.
International bank HSBC is a leader in the field of chip design.$Arm Holdings (ARM.US)$Before the release of the first-quarter financial results for the fiscal year 2025 on Wednesday Eastern Time, HSBC further downgraded its rating on the stock to "shareholding", a negative rating. Since the AI wave swept the globe in 2023, the footprint of the Reduced Instruction Set Architecture (ARM) has spread from the smartphone end to the AI data center server end. Therefore, Arm Holdings from the UK has been a market focus since its listing on the US stock market last year, with gains of up to 88% since 2024 and up to 150% since its listing in September 2023. $NVIDIA (NVDA.US)$and $Microsoft (MSFT.US)$In addition to valuation, HSBC analyst Li expressed great concern about the profit expansion pace of the Android smartphone market. Analyst Li added that other concerns include the growth narrative of AI PC. Although Arm patent usage fees have indeed become higher, he cited some mixed market feedback on the new ARM-based AI PC central processors and Qualcomm smart phone chips from one of Arm's core customers, as well as competition from the two major x86 architecture giants. These factors will further intensify in the era of AI PC and AI data center expansion.
However, since the global chip giants, such as NVIDIA and SK Hynix, plummeted in July, Arm's share price also failed. After soaring by 40% in June, it has fallen by more than 15% since July, mainly due to the expectation of a substantial increase in the Fed's interest rate. Funds are flowing into mid- and small-cap stocks which have been hit hard for a long time, and the market is also dumping hot technology stocks closely related to AI, such as Google, after they are facing uncertainty on the monetization of AI assets.
After HSBC released a bearish report on Arm's stock rating on Monday, Arm's share price was further hit hard, falling by more than 5% on Monday. It has dropped over 23% compared to its all-time high since its listing on the stock market.
According to Frank Lee, an analyst at HSBC in the report, Arm really has one of the best growth stories given the significant growth expectations of artificial intelligence. However, so far this year, its stock price has risen to as high as 110%, and it is expected to reach a high PE ratio of 72x based on its performance expectations for fiscal year 2026, which is significantly higher than the premium ratio of its peers in other chip industry chains. Therefore, Frank Lee, the analyst, downgraded HSBC's rating for Arm from "hold" to "put" but slightly raised its target price from $100 to $105. At the close of trading on Monday, Arm's stock price was at $141.44.
Analyst Li from HSBC expressed great concern about the profit expansion pace of the Android smartphone market, in addition to the key factor of valuation. Analyst Li added that other concerns include the growth narrative of AI PC. Although Arm patent usage fees have indeed become higher, he cited some mixed market feedback on the new ARM-based AI PC central processors and Qualcomm smart phone chips from one of Arm's core customers, as well as competition from the two major x86 architecture giants. These factors will further intensify in the era of AI PC and AI data center expansion. $Qualcomm (QCOM.US)$Other than concerns about valuation, analyst Li from HSBC expressed great concern about the profit expansion pace of the Android smartphone market. Analyst Li added that other concerns include the growth narrative of AI PC. Although Arm patent usage fees have indeed become higher, he cited some mixed market feedback on the new ARM-based AI PC central processors and Qualcomm smart phone chips from one of Arm's core customers, as well as competition from the two major x86 architecture giants. These factors will further intensify in the era of AI PC and AI data center expansion. $Advanced Micro Devices (AMD.US)$And.$Intel (INTC.US)$In addition to concerns about valuation, HSBC analyst Li has expressed strong concerns about the profitability of the Android smartphone market. Analyst Li also raised concerns about the growth narrative of AI PCs. Although Arm patent usage fees have indeed risen, he cited some mixed market feedback on the new AI PC central processors based on the ARM architecture and Qualcomm's smartphone chips from one of Arm's core clients, as well as competition from the two major x86 architecture giants. These factors will further intensify in the era of AI PCs and AI data center expansion.
It is understood that SoftBank under the leadership of Masayoshi Son has been exploring ways to use Arm chip design solutions on a larger scale. Masayoshi Son hopes to create a huge new chip giant that complements Arm, which is controlled by SoftBank, and strives to create an AI chip giant that is comparable in scale and market share to Nvidia. SoftBank is currently Arm's largest shareholder, with a shareholding ratio of nearly 90%.
SoftBank suffered huge losses due to failed investments such as WeWork, but has been profitable in consecutive quarters. Behind this is the enormous profit brought by investing in Arm. Arm is Masayoshi Son's latest investment representative work after his successful investment in Alibaba many years ago, and Son is obviously ready to continue his heavy bet on artificial intelligence.
Arm sells licenses for almost all smartphone mobile chip core instruction set architectures, the Reduced Instruction Set Computing Processor Architecture - ARM architecture, which is primarily used in the smartphone field. However, now, the ARM architecture is also increasingly appearing in the field of personal computers and data center AI server chips. Nvidia's self-developed Grace CPU is based on the ARM architecture. Amazon's self-developed data center Graviton server processor also uses the ARM architecture. Microsoft's latest self-developed and customized AI chip, Azure Cobalt 100, a server CPU specifically designed to run cloud computing workloads on Microsoft Azure cloud servers is also built on the ARM architecture. Therefore, taking advantage of this global AI investment craze, Arm has skyrocketed 88% so far this year, with a market capitalization of up to $150 billion, SoftBank, its largest shareholder, has a shareholding ratio of nearly 90%, and is undoubtedly the biggest winner since Arm's listing.
In terms of performance expectations, Wall Street analysts unanimously expect Arm's adjusted EPS for Q1 2025, as of June, to reach $0.35, with expected total revenue of approximately $0.9065 billion. By comparison, Arm's adjusted EPS for the previous quarter was $0.36, with total revenue of approximately $0.928 billion.
Compared to HSBC's most negative rating of "shareholding" and a target price of only $105 within 12 months, Wall Street analysts are relatively optimistic about Arm's overall rating and target price. According to Seeking Alpha, the general rating of Wall Street analysts is "buy", but the target price is relatively cautious, with an average target price of about 126, far below Arm's current stock price, which means that the general consensus on Arm in the next 12 months will fall by at least 11%.
Editor / jayden