Shares in Arm Holdings experienced a 4.6% drop on Tuesday, marking the third consecutive daily decline for the chip designer in its initial four sessions on the stock exchange. This downturn signals a waning investor interest in what was anticipated to be the year’s largest initial public offering (IPO). At the close of trading, the stock settled at $55.31, a considerable departure from its opening day pinnacle of $69.
Compounding the situation, attention among investors has begun to shift towards another prominent IPO, as the grocery delivery service Instacart surged to $36.91 on its debut session, exceeding its $30 IPO price. This diversion of focus has only added to the challenges faced by Arm Holdings.
Simultaneously, the Philadelphia semiconductor index witnessed a 0.7% decline on Tuesday, attributed to the strain from escalating bond yields on growth sectors, particularly in technology.
Redburn Atlantic, an esteemed equity research and trading entity, has initiated coverage of ARM with a “neutral” rating and a target price of $50. They argue that endorsing the stock at current valuations necessitates substantial confidence in the company’s long-term earnings performance.
According to Daniel Morgan, a portfolio manager at Synovus Trust in Atlanta, Georgia, fluctuations in share prices may be influenced by what some investors refer to as an “AI play.” While it is accurate that Arm’s products stand to gain from advancements in artificial intelligence, they have yet to match the performance levels exhibited by Nvidia’s offerings. Consequently, Morgan expresses the need for further evidence linking ARM stocks to AI before considering investment.
In a further blow to the chip designer, analytics firm Ortex disclosed that short sellers have initiated bets against Arm stock. Over 5 million shares of the newly listed chip designer, equivalent to 2.7% of the stock’s free float, are currently “on loan,” with borrowing costs soaring at 12.76%.
Notably, analysts from Bernstein and Needham have also expressed newfound skepticism regarding the chip technology company’s prospects. The initiation of trading for options on the stock on Monday has seen a surge in investors positioning for further downside.
In an attempt to bolster their stock’s standing, Arm announced that its underwriters have fully exercised their over-allotment option, acquiring an additional 7 million American depository shares (ADSs). This move raises the total funds raised from the IPO to approximately $5.2 billion.
In conclusion, shares of Arm Holdings have experienced a notable decline for a third consecutive day, highlighting a growing apprehension among investors following its lackluster IPO performance. With short seller involvement and lukewarm reception, the immediate future appears uncertain for this tech giant.
Source: Reuters
