Shares of Arm Holdings (NASDAQ: ARM) were among the losers last month as concerns about the stock's valuation seemed to overshadow the broader tailwind in artificial intelligence (AI).
While there was relatively little news on the stock, Arm missed the tailwinds that carried peers like Nvidia and Super Micro Computer higher last month. Arm stock finished the month down 11%, according to data from S&P Global Market Intelligence, as the lockup following its initial public offering (IPO) expired, and its rebound on Nvidia's developer conference gave way to a sell-off at the end of the month.
You can see the stock's roller coaster performance in the chart below.
Arm's price tag weighs on the stock
Arm shares soared in February as the chip designer beat estimates in its fiscal third-quarter report, raised its guidance, and asserted that it was seeing strong demand from the AI boom.
The stock was volatile in March but pulled back in the second week of the month as one of the worst days of the month came on March 8 when the stock fell 7%. AI stocks fell broadly that day as chip stocks Broadcom and Marvell both offered tepid forecasts in their quarterly earnings reports.
The following week, Arm's post-IPO lockup period expired on March 12. That can sometimes trigger sell-offs as insiders rush to sell shares on the public market, but Arm shares actually rose that day on high volume. That may signal stronger demand for the stock than expected. About 90% of Arm's shares are held by SoftBank as well, which likely made the lockup expiration less eventful than it would have been.
During the week of March 18, the stock rebounded after a brief dip after Nvidia introduced its new Blackwell platform, which is powered by an Arm-based chip and should drive strong royalty revenue for Arm.
Lastly, Arm closed out the month on a downswing, falling 7.5% on March 26, though there was no company-specific news.
Image source: Getty Images.
What's next for Arm?
Arm is well positioned to capitalize on surging demand for generative AI applications because its chips are prized for their ability to consume less power than similar chips, which is valuable in AI since applications demand large amounts of power.
However, Arm shares are expensive at a forward price-to-earnings ratio of 105. In order to move higher from here, the stock will need continued tailwinds in AI and strong company results. We'll learn more when Arm reports fiscal fourth-quarter earnings, due out on May 8.
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Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
