Arm shares fall after company gives tepid annual forecast

ARM Holdings shares tumbled after the chip designer gave a lukewarm revenue forecast for the fiscal year, raising concerns that the tech industry’s artificial intelligence (AI) spending spree is slowing.

For fiscal 2025, which ends next March, revenue will be US$3.8 billion to US$4.1 billion, the company said on Wednesday (May 8). Profit will be US$1.45 to US$1.65 a share. Analysts were predicting a total of US$4.01 billion – representing a gain of 26 per cent – and a profit of US$1.53 a share.

The shares dropped as much as 10 per cent to US$95.25 in late trading after the report was released. Three months ago, an upbeat forecast sent its shares soaring and helped turn the company into an AI darling on Wall Street. The stock was up 41 per cent this year to Wednesday’s close.

Arm’s chip designs and licensed standards already serve as a critical technology for most smartphones. Under chief executive officer Rene Haas, the UK-based company is trying to parlay that position into a bigger presence in data centre hardware – where AI demands are spurring major upgrades. As part of that push, Arm is offering more complete technology blueprints to companies such as Amazon.com’s AWS.

Haas said Arm remains “very confident in the long-term growth”.

“A lot of the strategies we put in place a couple of years ago are all coming together,” he said.

The company believes it will post a revenue growth rate of at least 20 per cent in fiscal 2026 and 2027, chief financial officer Jason Child said on a conference call with analysts.

Sales will be US$875 million to US$925 million in the June quarter, the chip designer said. That compares with an average analyst estimate of US$868 million. Earnings per share, minus certain items, will be 32 US cents to 36 US cents. Wall Street was projecting 31 US cents.

In the fiscal fourth quarter, which ended in March, revenue was US$928 million. Excluding some items, the profit was 36 US cents a share. That compares with average estimates of US$880.4 million and earnings of 30 US cents a share.

Arm has an unusual role in the semiconductor industry. It licenses the fundamental set of instructions that software uses to communicate with chips. The company also provides so-called design blocks that companies such as Qualcomm use to build their products.

Arm has been moving towards providing more complete layouts that can be taken directly to the manufacturing stage. That shift makes it more of a competitor for customers like Qualcomm, but more valuable to others – most notably, large data centre owners.

Cambridge, England-based Arm is still 90-owned by SoftBank Group, which acquired the business in 2016 for US$32 billion. An initial public offering in 2023 raised US$4.9 billion, marking the biggest debut on a US exchange that year.

Arm’s licensing sales increased 60 per cent to US$414 million last quarter, and royalty revenue gained 37 per cent to US$514 million.

The licensing revenue is a proxy for “R&D and for confidence in investment” by tech companies, Haas said. BLOOMBERG