Arm Holdings plc ARM shares tripled from the initial public offering (IPO) price following last week's earnings results before pulling back a bit on Tuesday.
Jim Cramer acknowledged that it was a fantastic quarter for the Cambridge, England-based firm, but he argued that the move higher was excessive.
“Arm Holdings, when it was at $160 yesterday, was not a natural thing. That was just the market mechanics breaking down,” Cramer said Tuesday on CNBC’s “Squawk On The Street.”
SoftBank acquired Arm in 2016 for $32 billion and took the company public last year in what was the biggest IPO of 2023. Softbank still owns approximately 90% of the chip designer's outstanding shares, which has created a low-float dynamic in the stock. Cramer suggested that high short interest might have also played a role in the outsized move.
“This stock should be nowhere near here. I think it was a terrific quarter,” Cramer said, praising CEO Rene Haas. “I think Rene did a great job. Possible that this stock should be as high as $80, maybe even $85,” Cramer said.
Arm beat analyst estimates on the top and bottom line and issued strong guidance. The company noted that it has room to increase prices on some of its product offerings moving forward, and highlighted plans to tap new markets due to AI demand.
“I don’t know how to get higher than $85,” Cramer added. “People took it to a level using market orders which is very similar to what we saw when market orders were used in 1999 to 2000 … the stock is radically overvalued.”
Given that Arm went public at $51 per share, a current stock price of around $80 or $85 per share would be “such a success,” he said.
Arm went public with a float that was much too small. Now, the stock price is inflated, similar to what happened during the dot-com bubble, Cramer said. Those stocks eventually traded lower as the IPO lockups expired.
Cramer emphasized that it’s a “shame” to see because from a fundamental standpoint, the quarter was terrific. Arm's 180-day post-IPO lockup is set to expire on March 12.
ARM Price Action: Arm Holdings shares were down 18.7% at $120.97 at the time of publication. Despite Tuesday’s losses, the stock is still up approximately 125% over the last three months, per Benzinga Pro.
Photo: Owen Byrne from Flickr.
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