Fair•16 Sep ’23 11:55•Modified on 17 Sep ’23 01:12Author: Thijs Baas
The Arm share got off to a good start on Thursday. But it could still be a major challenge to maintain the share. ‘Priced to perfection’ and ‘hyped too much’ are two qualifications that have appeared in BNR Beurs in recent days. Time will tell.
British chip developer Arm climbed further on the New York stock exchanges yesterday. The company, which supplies the designs for chips that are in almost all smartphones, had a successful IPO a day earlier, with a share price increase of almost 25 percent. Yesterday another 3.2 percent was added. But that is no guarantee for a successful future on the stock exchange, with an uncertain smartphone market and dependence on China.
It is even an insane valuation for a company whose profits barely grew last year, says Errol Keyner, deputy director at the Association of Stock Owners (VEB). And the prospects are not bright. The current market share of at least 90 percent offers little room for further growth and the number of smartphones will no longer grow rapidly, says Keyner. ‘Arm is just not in the chips that are most in demand: those for artificial intelligence.’
Arm is not yet 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 yet been able to make any progress. ‘That is why a huge amount of catching up is needed, where everything has to work out. For the moment, I mainly see it as a marketing sauce that will make investors even greedier to buy those shares. So it’s too much up in my opinion gehyped.’
Also read | ‘Failed IPO Arm would undermine entire tech sentiment’
According to Keyner, a major risk is the dependence on China, where Arm has a subsidiary that accounts for 25 percent of turnover and profit. They think they can fully consolidate there, but the Chinese government is ultimately in charge. With the difficult relations between China and the rest of the world, a lot is at stake. ‘And if a quarter of your business is closed, you have a problem: 25 percent decline instead of growth.’
High price/earnings ratio
Hans Oudshoorn, investment trainer at Saxo Bank, also thinks the opening price of 60 dollars is on the high side, with a price-earnings ratio of 100. ‘So you pay a hundred times the profit. If you spread widely across the semiconductor market, you are at about 25. It is a bit priced to perfection. I wouldn’t be a buyer because I’m afraid it will make you poor. The price immediately rose quickly and you may wonder whether that is realistic, given their business model.’
The Arm share got off to a good start on Thursday. But with the necessary uncertain factors, it can still be a major challenge to maintain the share. ‘Priced to perfection’ and ‘hyped too much’ are two qualifications that have appeared in BNR Beurs in recent days. Time will tell. RichardxB.xLevine (ANP / Imago Stock & People GmbH)
Arm does not produce chips itself, but only designs them. And it is a sector that is somewhat stagnant, says Oudshoorn. Arm will therefore have to look for alternative sources of income, for example AI. But that doesn’t really make any difference either. ‘It was the CEO’s pitch: going public to benefit from Nvidia’s success, but that is not yet an option.’
Search for new customers
It is not without reason that Arm is looking for new customers, such as chip builders who can ‘translate’ energy-efficient battery technology to currently energy-guzzling data centers. ‘They have that expertise from smartphones.’ AI, data centers and the smartphone market are actually all three uncertain factors, Oudshoorn agrees. “So those are three red flags for investors.”
2023-09-16 22:31:54
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