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HSBC turns cautious on ARM after stock rally and valuation surge
HSBC cut its ARM price target to $230 from $315 and cited potential limits on short-term earnings growth tied to Taiwan Semiconductor foundry capacity constraints.
ARM Holdings has benefited from the AI boom as its energy efficient CPU designs expand beyond smartphones into cloud and data center markets, with major cloud providers adopting ARM based designs for AI data centers, according to Yahoo Finance.
But HSBC has grown more cautious as it argues the market is pricing in too much of ARM's long term growth, noting the stock has significantly outperformed the broader semiconductor market since the company's “Arm Everywhere” event in March.
HSBC said ARM's potential for long term growth from merchant server CPUs and higher server CPU royalties is meaningful, but that investors are already reflecting much of that upside in the stock's current forward P/E of roughly 128.
HSBC analyst Frank Lee reiterated a Hold rating on July 30, cut the price target from $315 to $230, and pointed to foundry capacity constraints at Taiwan Semiconductor as a possible drag on near term earnings growth, while UBS took a more optimistic view on rising demand for standalone CPUs and the potential for higher royalty rates.