Arm’s share got off to a good start on Thursday. But maintaining share may still be a major challenge. “Perfectly priced” and “overpriced” are two tags that have appeared on BNR Beurs in recent days. Time will tell.
Shares of British chip developer Arm rose further on the New York stock exchanges yesterday. The company, which supplies the chip designs found in almost all smartphones, had had a successful IPO the day before, with its stock price increasing by about 25 percent. Yesterday, another 3.2 percent was added. But this does not guarantee a successful future in the stock market, in light of the uncertain smartphone market and dependence on China.
That’s a crazy valuation for a company whose profits barely grew last year, says Errol Keener, deputy director at the Stockholders’ Association (VEB). The prospects are not bright. Kenner says the current market share of at least 90 percent does not provide much room for further growth, and the number of smartphones will not grow as quickly anymore. “The arm is not among the most sought-after chips: those for artificial intelligence.”
Arm has not yet been able to make any progress in the AI market
These are chips with a much larger capacity. But AI is an area where Arm has not been able to make any progress so far. “That’s why there’s a lot of catching up needed, as everything has to work out. Right now, I see it basically as a marketing sauce that will make investors greedier to buy those stocks. So it’s overrated in my opinion.” Exaggerated.’
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According to Kenner, the main risk is dependence on China, where Arm has a subsidiary that accounts for 25 percent of business volume and profits. They believe they can fully unify their ranks there, but the Chinese government is ultimately responsible. With China’s difficult relations with the rest of the world, much is at stake. “And if a quarter of your business is closed, you have a problem: a 25 percent decline instead of growth.”
High price-earnings ratio
Hans Oudshoorn, investment coach at Saxo Bank, believes the opening price of $60 is also high, with a price-to-earnings ratio of 100. “So you’re paying a hundred times the profit. If you’re spread wide in the semiconductor market, you’re at about 25 A year, which is a small number Priced to perfection. I won’t be a buyer because I’m afraid it will make you poor. The price immediately rose quickly and you may wonder if that is realistic, given their business model.
Arm doesn’t produce the chips itself, it just designs them. Oudshoorn says this sector is somewhat stagnant. So Arm will have to look for alternative sources of income, for example artificial intelligence. But that doesn’t make any difference either. “It was the CEO’s pitch: go public to capitalize on Nvidia’s success, but that’s not yet an option.”
Search for new clients
It’s no coincidence that Arm is looking for new customers, such as chipmakers who can “translate” energy-efficient battery technology to currently power-hungry data centers. “They have that experience from smartphones.” Oudshoorn agrees that artificial intelligence, data centers and the smartphone market are actually three uncertainties. “So those are three red flags for investors.”
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