Investing.com -- Here is your Pro Recap of the biggest analyst picks and cuts you may have missed today: several buy-equivalent initiations at Arm Holdings, upgrades at On Holding and Zscaler, and downgrades at Spotify and Splunk.
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Arm Holdings started with buy ratings at a slew of Wall Street firms
A number of brokerages started coverage of Arm Holdings (NASDAQ:ARM) with buy-equivalent ratings - including Goldman Sachs, Citi, Jefferies, Guggenheim, Deutsche Bank, and Mizuho Securities - about a month after the company's smashing market debut.
The parade of buy calls came on expectations for robust top- and bottom-line growth out of the SoftBank (OTC:SFTBY)-backed chip outfit.
Goldman Sachs, for instance, started Arm with a Buy rating and a $62 price target, centering its outlook not only on Arm's expansion in the smartphone market - driven primarily by increased royalty rates - but also the company's potential to extend its influence into areas where it currently has a smaller footprint, including data center, automotive, and IoT.
Goldman expects a three-year compound annual growth rate (CAGR) of some 16% for revenue and 36% for non-GAAP EPS (excluding SBC) through fiscal 2026. Both of these figures significantly surpass the median performance of companies in its semiconductor and semiconductor capital equipment coverage universe, say the analysts.
Turning to Citi's buy initiation, those analysts have set a $65 price target, citing their expectation that Arm will remain the dominant provider of independent silicon IP in the semiconductor market. The analysts added that the company "has long been dominant in mobile, but can now benefit from providing additional content at higher prices into a mature market. In the more rapidly growing infrastructure space, long-awaited share gains in servers are evident."
Citi believes these factors will lead to faster sales growth - 18% CAGR to fiscal 2027 - and with the potential for greater operating leverage than during its prior incarnation (36% EPS CAGR), "thereby supporting higher valuation."
And Rosenblatt - which started the firm with an eye-popping price target of $85 - said the company "is poised to ride strong secular growth trends in edge computing, AI, automotive, and IoT" and that growth "will be driven by increasing per-chip royalties as Arm gains share in structural growth markets" while "new offerings like Armv9 and subsystems should boost royalties." Rosenblatt believes sales should grow at 15% to 20% CAGR long-term.
Shares were trading up 0.7% to $54.43 in the premarket.
Spotify slides on downgrade
Spotify (NYSE:SPOT) shares fell more than 2% pre-market today after Redburn-Atlantic downgraded the company to Neutral from Buy and cut its price target of $160 from $170, as reported in real time on InvestingPro.
"Our Buy thesis on Spotify was based on margin expansion. However, we estimate the new audiobook offer will be gross margin dilutive: the roll out in the UK / Australia could erase c60bp of gross margin, with the US having a further 140bp impact,” wrote the brokerage.
Despite upward revisions in subscriber numbers and average revenue per user (ARPU), Redburn-Atlantic cut its 2025 EBIT estimate by 8%. “This represents yet another deferral of profitability and could also incite a response from Amazon,” added the brokerage.
Two picks and one cut
On Holding (NYSE:ONON) share rose more than 1% pre-market today after Baird upgraded the company to Outperform from Neutral with a price target of $33.
This move comes as On shares have fallen by 23% since early April, and are only 5% above their 2021 IPO price due to sector-wide compression to growth multiples.
“With the in-person portion of last week’s Zurich investor day reinforcing our confidence in current brand health and the upcoming three-year pipeline of growth drivers (raising 2024-2025E margin assumptions), and with current valuation consistent with the low end of our early-stage growth factor framework, we see increasing appeal for ONON on a one-and multi-year basis," mentioned Baird.
Last week, the company was upgraded by Williams Trading, which moved its rating from Sell to Hold with a price target of $26.00.
Separately, Evercore ISI downgraded Splunk (NASDAQ:SPLK) to In Line from Outperform with a price target of $157.00.
And Barclays upgraded Zscaler (NASDAQ:ZS) to Overweight from Equalweight and raised its price target to $190.00 from $176.00, citing the growth potential in SASE as a key driver for the upgrade and positioning Zscaler as a leader in the SASE sector.
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