Arm Holdings, the chip-design company, made a sensational entry into the New York market during its initial public offering. However, industry analysts at Susquehanna Financial Group suggest caution before jumping to buy their stocks.

Even though Arm began with a valuation of over $50 billion and has emphasized its involvement in the growth of artificial intelligence, the shares have settled close to the listing price after the initial surge.

Christopher Rolland and Mehdi Hosseini from Susquehanna believe that Arm’s stock is now fully valued. They have jointly initiated coverage of Arm with a Neutral rating and set a share-price target of $48. This figure is based on an enterprise value of 15 times Arm’s projected sales for 2024.

As of early trading on Friday, Arm shares experienced a 1.7% decline and were valued at $51.30. This places them just above the IPO price of $51 per share, down from the levels exceeding $60 seen in the first week of trading.

The primary challenge facing Arm is the current sluggishness in its largest market—mobile handsets. In order to maintain a premium valuation, Arm will have to explore new avenues and maximize royalty charges for its intellectual property. Rolland and Hosseini highlight the need for Arm to venture into other sectors and expand beyond mobile handsets.

The analysts stated in a research note, “Given their slowing end markets, risks associated with royalty rate expansion for their core customers, and margin contraction associated with their additional revenue streams, we believe ARM should therefore trade at a valuation discount to the stock of the last decade.”

In conclusion, while Arm Holdings made a memorable market debut, investors should exercise caution and evaluate the stock’s current value before making any hasty decisions.

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