We recently compiled a list of the 20 Worst Performing AI Stocks of Last Week. In this article, we are going to take a look at where ARM Holdings plc (NASDAQ:ARM) stands against the other AI stocks.
US Stocks in September
This September saw a sluggish start for most US stocks, and large-cap technology stocks were no exception to this trend. The main driving factors for this development include concerns over the health of the American economy resurfacing, particularly in light of the August jobs report. The report underscored the labor market’s weakness in the US, which has not left investors feeling all that secure about the state of the economy.
On the stock side, many investor favorites in the artificial intelligence (AI) space have been doing poorly so far in September, with losses ranging from around 4% to even over 20% for the first week of September. The primary reason for this decline seems to be that investors are just not satisfied with the growth demonstrated by major AI companies at present. While growth is definitely present, it’s continuing to fall short of investor expectations, which have increased exponentially in light of the hype cycle created around AI stocks.
Are We Really In An AI Bubble?
The first week of September was actually the worst week for chip stocks recorded in over two years. Many investors are now beginning to wonder whether AI is worth the amount of money being poured into it, resulting in corporate spending on AI coming under greater scrutiny than ever before. The greater scrutiny is predominantly because of investors and analysts now thinking that many AI stocks are overhyped and overvalued and don’t have the means to justify this hype and valuation – essentially, the main concern is that we’re in an AI bubble that’s on the brink of bursting.
However, as with any high-tension market situation, there are diverging opinions as well. In his September 6 interview on CNBC’s “Closing Bell Overtime,” Deepwater Asset Management’s managing partner, Gene Munster, emphatically stated that we are not in an AI bubble. For him, the bigger problem in the AI space is that every other company today is trying to talk about AI and say that it’s working towards AI incorporation in its operations – something that’s leading to a lot of noise in the market, which is drowning out the voices of companies offering real substance in this space. He thus noted that it’s important for investors to be careful not to invest in just any company that says it’s working with AI and instead to focus on the better, perhaps more boring, options in the market.
According to Munster, the main players to keep your money in are predominantly big tech names, as these are the only companies that are poised to deliver substantial growth instead of just generating noise. However, investors are still confused about whether AI is a good place to invest in even today, which is why we’ve compiled a list of the worst performing AI stocks in September so far and explained whether these stocks are worth picking up or if they’re just temporary beneficiaries of the hype around AI.
Our Methodology
We compiled our list by screening for AI stocks that have seen declines of 10% or above in the first week of September, and then ranked the stocks based on their weekly decline as of Friday, September 6. We have also mentioned the number of hedge funds holding stakes in each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician inspecting a microchip with advanced technology used in the semiconductor industry.
ARM Holdings plc (NASDAQ:ARM)
Weekly Decline: 12.02%
Number of Hedge Fund Holders: 38
ARM Holdings plc (NASDAQ:ARM) is a semiconductor company based in the United Kingdom. It develops and licenses central processing unit products and related tech for semiconductor companies and original equipment manufacturers.
The primary reason why investors consider ARM Holdings plc (NASDAQ:ARM) to be a desirable semiconductor stock is that it has a unique business model. Instead of actually producing semiconductors, the company designs the infrastructure for CPU chips that its customers, such as Apple, Samsung, Alphabet, and Nvidia, use as a blueprint for building.
Through this model, ARM Holdings plc (NASDAQ:ARM) receives license payments and royalties based on the number of products sold. This model has also helped ARM Holdings plc (NASDAQ:ARM) accumulate a market share of 99% within the global smartphone market.
The main reason why ARM Holdings plc (NASDAQ:ARM) is facing challenges in the current market is its valuation. Many investors are put off by the fact that its P/E ratio is 75.1 since the sector median stands way below this figure at only 22.9. As a result, most investors are avoiding ARM Holdings plc (NASDAQ:ARM) at present, at least until the stock’s price falls to a more reasonable level.
ARM Holdings plc (NASDAQ:ARM) had 38 hedge funds long its stock in the second quarter, with a total stake value of $979.1 million.
Overall ARM ranks 13th on our list of the worst performing AI stocks last week. While we acknowledge the potential of ARM as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
