Arm stock dropped below its initial public offering price on Thursday amid negative sentiment for the chip designer's prospects.
On the stock market today, Arm stock dropped as low as 49.85. However, it ended the day down 1.4% to 52.16.
Arm began trading on Sept. 14 with its IPO priced at $51 a share. Arm stock surged as high as 69 on its second trading day but has fallen for five straight sessions.
Wall Street analysts who have initiated coverage of Arm stock so far have been neutral to negative on it as an investment.
Arm Stock Gets Underperform Rating
Bernstein analyst Sara Russo initiated coverage of Arm stock with an underperform rating and price target of 46.
Russo is cautious on Arm's chances of capitalizing on the growth of artificial intelligence since the company's stronghold is in processors for smartphones.
"In addition, we remain more conservative on their ability to deliver increased royalty rates at the pace management is guiding," she said in a note to clients. "Indications are that Arm expects to see significant royalty rate improvement in mobile over the next 3-4 years aligned to customers moving from v8 to v9 of their architecture."
Other risks for Arm stock include competition from open-source RISC-V semiconductor designs and the company's large exposure to China, she said.
Arm Faces 'Post-Smartphone Era'
Plus, Arm is a "controlled company" with 90% of shares owned by Japan-based SoftBank.
Needham analyst Charles Shi started coverage of Arm stock with a hold rating. He expressed skepticism about Arm's place in the market as the tech industry's priorities shift.
"The world is entering a post-smartphone era that will see high-performance computing and IoT (Internet of Things) lead the next phase of semiconductor growth," Shi said in a note to clients.
In those new growth areas, "not only do viable alternatives to Arm exist, but ecosystem control often resides in the hands of others," he said.
Arm stock wasn't the only recent tech IPO to suffer a painful reversal. Maplebear, parent of Instacart, also saw its shares fall post-IPO.
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