Deutsche Bank has downgraded Arm Holdings (NASDAQ:ARM) from Buy to Hold, raising its price target to $70 from $60 per share in a note to clients on Monday.
The investment bank believes that Arm's valuation is fully appreciated at current levels.
Analysts noted that Arm's shares have risen by nearly 40% since its IPO and now trade at around 41 times their CY2025 earnings estimates. This compares to its peer Cadence (CDNS), which trades at about 40 times its CY2025 earnings estimates.
"While we acknowledge the favorable interest rate environment makes ARM look attractive on a DCF basis (a valuation framework many investors apply to ARM), we believe this is fully appreciated at current valuation levels," analysts wrote. "Therefore, while our outlook for ARM to deliver solid growth remains unchanged, after the recent rally, we now view the shares as fully valued."
Overall, assessing semiconductor stocks in general, Deutsche Bank said that looking into 2024 from a fundamental perspective, they believe investors must evaluate the shape of the recovery in broad-based names and the sustainability of demand for AI.