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Arm Holdings (NASDAQ:ARM) rebounded on Friday even as investment firm Susquehanna started coverage on the British chip design firm with a neutral rating.
Analysts Mehdi Hosseini and Chris Rolland, who also put a $48 price target on Arm (ARM) shares, said the stock has a “fairly valued” risk-reward. The company looks to be pushing royalty rates to the “limit” even as it adds lower margin “subsystems” revenue.
Looking ahead, the analysts said that future catalysts include new Arm (ARM) server CPU launches, further share gains, an increase in the royalty rate and improvements in ISAs and core.
Holland added that given the company’s slowing end markets – including smartphones – along with the risks associated with rising royalty rates for core customers and lower margins from the added revenue streams, the stock should trade at a discount to the past.
Arm (ARM) shares rose 1% in pre-market trading to $52.68.
On Thursday, Arm (ARM) shares slipped below the initial public offering of $51 before rebounding to end the trading session.
Last week, Arm (ARM) returned to the public markets after being acquired by Japanese tech conglomerate SoftBank (OTCPK:SFTBY) in 2016. Initial enthusiasm for the British chip design firm was exceptional, as shares rose more than 25% on their first day of trading, but has declined since then.