Arm falls ahead of earnings as HSBC downgrades rating on smartphone concerns

Arm Holdings (NASDAQ:ARM) was in the spotlight on Monday when HSBC downgraded the semiconductor design firm ahead of its first-quarter earnings report on Wednesday.

Shares fell by 1.9% in pre-market trading.

Arm has one of the best narratives given expectations of “significant” growth related to artificial intelligence, but the stock has gained more than 110% since the beginning of the year and now trades at 72 times fiscal 2026 earnings, a “significant” premium compared with semiconductor peers, said analyst Frank Lee. Lee lowered his rating on Arm from hold to reduce but slightly raised his price target, from $100 to $105.

In addition to the high valuation, Lee raised concerns about a potential slowdown in Android smartphone market momentum ahead of its earnings release, which are due after the close of trading on July 31. Other concerns include the narrative that AI PCs are not as bullish as previously expected despite higher licensing fees, Lee added, citing some “mixed” feedback from Qualcomm (QCOM) and increased competition from x86 vendors AMD (AMD) and Intel (INTC).

Analysts expect Arm to post earnings of $0.35 per share on revenue of $906.5 million in the first quarter.

Analysts are mostly bullish on Arm (ARM). It has TO HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it as TO BUYBy contrast, Seeking Alpha’s quantitative system, which consistently beats the market, does not have an ARM rating.