Needham says investors must be patient with Arm as post-IPO valuation 'looks full'

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Needham says investors must be patient with Arm as post-IPO valuation 'looks full'
Credit: © Reuters.

Arm Holdings (NASDAQ: ARM ) rose as much as 25% during its first day of trading following its much anticipated initial public offering (IPO).

The shares were priced at $51 each for the IPO. When the market opened, Arm Holdings had a valuation of nearly $60 billion.

Owner SoftBank (TYO: 9984 ) successfully sold approximately 95.5 million shares. SoftBank, which had taken the company private in 2016, retained control over around 90% of the outstanding shares.

The stock opened at $56.10 on its first trading day and concluded the day at $63.59, reflecting strong investor interest in the company.

Following a blockbuster debut, Needham & Company analysts warn that the chipmaker’s valuation “looks full.” They launched coverage with a Hold rating.

“Arm's architecture is a foundation of smartphones, but we believe the world is entering a post-smartphone era that will see high-performance computing and IoT lead the next phase of semiconductor growth. We attribute Arm's past success in smartphones to its tightly controlled ecosystem,” they said in a note.

“In new growth areas, however, not only do viable alternatives to Arm exist, but ecosystem control often resides in the hands of others. We think Arm can grow by capturing greater value from smartphones, but not enough to support upside from the stock's IPO valuation.”

The analysts urged investors to “await a better entry point.”

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