Arm Holdings Plunged Nearly 20% in Dec.

Arm faced an analyst downgrade and fears over potential selling pressure from its largest shareholder.

Arm didn’t report any financial news during the month, but its high valuation came under scrutiny following an analyst downgrade and the potential for selling pressure from its largest shareholder, Softbank.

It was actually a relatively light news month for Arm, but a skeptical investing public tended to take profits in December after a strong run to the year for semiconductors.

On December 15, sell-side analyst Jim Schneider of Goldman Sachs downgraded Arm shares to the ignominious “Sell” rating, from his prior “Neutral” rating. “Sell” ratings are fairly rare among Wall Street analysts, with “Neutral” usually indicating skepticism and “Sell” indicating outright pessimism.

Schneider flagged Arm along with a handful of other semiconductor stocks that had been disappointments in the early stages of the AI buildout, claiming Arm had “limited ability” to leverage the AI cycle. He also pointed out risks to Arm’s “business model transition” as it moves from licensing IP blocks to full sub-systems, and even explores making its own chips, potentially putting it competition with its customers.

In truth, the downgrade doesn’t seem that reasonable, since Arm licenses its architecture to Nvidia (NVDA +0.88%) for its Grace CPUs, as well as most of the cloud giants for their in-house server CPU designs. Last quarter’s revenue grew 34%, so it doesn’t appear that growth is a big problem right now.