ARM Holdings plc: Technical Analysis Signals Potential Correction amid Nasdaq-100 Inclusion

Technical Analysis

Arm Holdings plc (NASDAQ: ARM) closed at $157.89 on June 14, 2024, marking a slight decline of 0.10%. The stock has a recent low of $153.50 and a recent high of $167.69, which also marks its 52-week high. The Relative Strength Index (RSI) value of 88 indicates that the stock is in overbought territory, suggesting potential for a correction. The Moving Average Convergence Divergence (MACD) at 9.26 supports bullish momentum, although the high value may also signal overextension.

The stock's 50-day moving average (116.72) and 200-day moving average (90.08) both reflect strong upward momentum, with current prices significantly above these averages. The Average True Range (ATR) of 5.18 implies high volatility. With support at $155.59 and resistance at $158.05, the stock is in a narrowly defined range, preparing for a potential move.

Fundamental Analysis

Arm Holdings is preparing to join the Nasdaq-100 Index on June 24, 2024, which is generating significant investor interest and contributing to the stock's recent price surge. The market capitalization stands at $164.26 billion, with a PE ratio of 563.89. The exceptionally high PE ratio raises concerns about overvaluation based on current earnings (EPS of $0.28).

The company's insider news and expected commercial gains from AI technology bode well for future revenue streams. Analysts project a price target range between $60 and $180, with a median target of $107, highlighted by a consensus rating as a 'Buy'. Further, the discounted cash flow (DCF) valuation estimates an intrinsic value of $237.72, suggesting the stock is undervalued at its current price.

Predictions

For the next trading day (June 17, 2024), the stock is likely to experience increased volatility within the support and resistance levels ($155.59 to $158.05), possibly testing the resistance given the overbought conditions. For the upcoming week, with the pending Nasdaq-100 inclusion, the stock could see an upward trajectory, potentially breaking through the current resistance of $158.05.

Long-Term Investment Potential

Despite short-term overvaluation indicators, the long-term intrinsic value suggests that ARM could be a strong performer in the future, especially considering the business benefits it stands to accrue from AI and its strategic inclusion in the Nasdaq-100 Index. Investors should be cautious of the high PE ratio and inflated short-term valuations but consider the potentially substantial long-term growth.

Overall Evaluation

Based on the current technicals, fundamentals, and future projections, ARM Holdings plc is classified as a 'Hold'. While short-term valuations are high, the strong fundamentals and potential for significant future growth provide a compelling case for holding the stock. Investors should watch for potential price corrections to more appropriate entry points, as well as monitor continued performance and integration within the Nasdaq-100 Index.