New Street Research has downgraded Arm's rating to "Neutral" as its valuation is deemed to be too high.

Zhitong App learned that as of 2024, the stock price of the UK chip design company Arm (ARM.US) has risen by over 83%, with a surge of over 95% since February. The rebound in Arm's stock price has pushed its forward P/E ratio to 36.5 times, significantly higher than any component stock of the Nasdaq 100 index. In comparison, its competitor Nvidia (NVDA.US) has a forward P/E ratio of less than 18 times. The valuation of Arm seems to be too high, even early bulls on the stock believe that the price has gone too far. The investment firm New Street Research, which was among the first to rate Arm, has downgraded the stock from "buy" to "neutral." Analyst Pierre Ferragu stated that to justify the current valuation, Arm "needs to achieve great success in all aspects." He said, "Even though we have higher expectations for the stock than the market consensus, assuming a forward P/E ratio of 40 times, we see no reason to buy the stock above $110." Arm closed down 5.64% on Tuesday at $137.95. Currently, among analysts tracked by Bloomberg, half recommend buying Arm, about 41% rate it as "hold," while the remaining analysts are pessimistic. The average target price from analysts suggests that Arm's stock price will drop by nearly 30%. Earlier this month, Arm reported better-than-expected performance for the third quarter of the 2024 fiscal year and raised its full-year 2024 performance guidance, leading to a nearly 48% surge on February 8. The financial report showed that Arm's Q3 revenue increased by 14% YoY to $824 million, surpassing the market's expected $760 million. Under Non-GAAP accounting standards, operating profit was $338 million, up 17% YoY, beating the market's expected $274 million; net profit was $305 million, up 36% YoY; diluted earnings per share were $0.29, exceeding the market's expected $0.25. Looking ahead, Arm expects Q4 revenue to be $850 million to $900 million, surpassing the market's expected $780 million; Non-GAAP diluted earnings per share are expected to be $0.28 to $0.32, exceeding the market's expected $0.21. The company also forecasts full-year 2024 revenue to be $3.155 billion to $3.205 billion, higher than the previous estimate of $2.960 billion to $3.080 billion. The estimated Non-GAAP diluted earnings per share are expected to be between $1.20 and $1.24, higher than the previous estimate of $1.00 to $1.10.