Arm coverage, Chegg downgrade: Trending Tickers
Wells Fargo (WFC) has initiated coverage on Arm Holdings (ARM) stock giving the company an 'Overweight' rating with a $70 per share price target. Analysts at Wells Fargo pointed out the company's chip designs and expanding markets in China among other reasons for the rating.
Shares of Chegg (CHGG) trend lower after Morgan Stanley (MS) downgraded the stock to 'Underweight' and lowered the target price of the stock from $10 to $9 per share. Morgan Stanley analysts cite concerns about slowing growth in online traffic and overly optimistic stock estimates as competitors rapidly adopt AI.
Yahoo Finance Anchors Julie Hyman and Josh Lipton break down the latest numbers with these companies and their guidance going forward.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
JOSH LIPTON: All right, now let's take a look at some of today's top trending tickers. We're going to start of with ARM here, they are rising after Wells Fargo initiates coverage on the stock with an overweight, so overweight equivalent there, of course, Julie, of a buy. Their target, it looks like, goes to 70, trading right now just below 59. Remember, of course, they IPO at around 51. They argue that ARMs top-line growth and margins should benefit from higher royalty rates ARM charged on some of that newer generation technology they got.
JULIE HYMAN: Right. And they're also talking about what they see are captive chip designs. And indeed, we've gotten headlines more recently about other companies using ARM architecture in order to build their own chips, but they're still using the ARM architecture. They also talk about some of the challenges that could be beneficial for them as well, China developing a domestic chip industry again if they're using ARM architecture in some cases. And they're also talking about a more holistic compute market opportunity for the company. So just, overall, seeing them as a winner in the semiconductor market.
JOSH LIPTON: Yeah, it's interesting because you talk to analysts about chips and their exposure to China, we know some names, for example, have been a bit more in the crosshairs, like NVIDIA. When you talk to ARM bulls, they actually said that was one perhaps tailwind for ARM. They didn't think they were in the crosshairs of Beijing, like some others.
JULIE HYMAN: Yeah, interesting stuff. And it's underperformed some of the other chip names this year. I mean, when you look at something like an NVIDIA that's up, what, 200% or something, this stock is only up about 15%. So it's been an underperformer on that basis. Let's talk Chegg, shall we? The company getting hit by a downgrade by Morgan Stanley. The firm turning bearish on the stock as it cites rising competition and concerns about slowing web traffic growth. The stock is down about 7.5% today, and Chegg has had a wild ride, to say the least. The stock is down sharply year-to-date. There's a lot of concerns about ChatGPT-style educational aids, the effect that's going to have on the company. But it has bounced even though, on that chart, it's a really little bounce, but it's enough of a bounce for Morgan Stanley to say that that recent bounce is the reason that now is the timing behind this downgrade.
JOSH LIPTON: Yeah, they're basically telling clients, listen, we see weaker trends in October. They say here specifically they call out web traffic traffic, app download data trends weakened in October. And then to your point, Julie, they also say, listen, longer-term here, the intensifying impact from generative AI, that could be a real issue here as students maybe who have allegiance or know Chegg very well, they say, as those kids graduate, you got a problem potentially.
JULIE HYMAN: Yeah, this is such-- it such an interesting and sort of depressing, maybe, kind of question, right, as to how important generative AI, and ChatGPT specifically, is going to be to the education system, and how much kids are going to be using it.
JOSH LIPTON: Oh, yeah.
JULIE HYMAN: And I think institutes of higher learning in particular are really trying to grapple with this and sort of incorporate it, right? Acknowledge that it's happening. Which is what Chegg is also tried to do, but investors are not seeing as being really successful.
JOSH LIPTON: I mean, listen, it could make homework look a lot differently in the future, for sure, for sure.
