Why is ARM low? Arm Holdings stock falls on earnings report, despite AI chip boom
[ad_1]
Just a day after chip giants Nvidia and TSMC saw their stock prices rise, a different fortune is affecting rival Arm Holdings. Yesterday after the market closed, Arm reported its results for the first quarter of the 2025 fiscal year, and in pre-market trading this morning, its shares (ticker: ARM) fell. As of the time of this writing, the stock is currently down more than 8%.
Here’s what you need to know about Arm’s results and why its share price fell sharply in pre-market trading this morning.
Q1 2025 results
Arm Holdings actually had a very good first quarter of its new financial year. The company posted $939 million in total revenue for the quarter, a 39% year-over-year increase. License and other revenue accounted for $472 million of that $939 million, a 72% year-over-year increase. Royalty revenue accounted for another $467 million, up 17% year over year.
The company also posted earnings per share of 40 cents.
In a shareholder letter accompanying the earnings report, CEO Rene Haas and CFO Jason Child wrote, “In Q1, we delivered solid revenue and exceeded our guidance for revenue and non-GAAP EPS. Licensing revenue has reached record levels as the proliferation of AI everywhere is driving more companies to make broad and long-term commitments to use Arm’s efficient technology in their future products.”
If Arm has good Q1 results, why is the stock price falling?
A 39% year-over-year increase in total revenue is nothing to sneeze at, so why did Arm’s price drop in pre-market trading?
It goes without saying that most investors seem disappointed by what Arm says will come next. That is, investors did not like that the company’s financial guidance for the current quarter (Q2 2025) and the main financial year remained unchanged, instead of being revised upwards based on the earnings of Q1 and the growth of the chip market in general due to the wave of AI sweeping the industry.
Arm forecasts revenue between $780 million and $830 million for its current Q2, and total revenue between $3.8 billion and $4.1 billion in 2025 for its full fiscal year. It also forecasts earnings per share between $1.45 and $1.65 in fiscal 2025.
That full financial guidance for 2025 is unchanged from when Arm last issued FY25 upward guidance.
How Arm makes money
Although Arm Holdings is a chip company, it is not a chip company like Nvidia or TSMC. Arm designs computer chips and licenses its designs and technology to other companies that make and sell the chips.
Because of this business model, Arm makes most of its revenue from license fees and royalties. However, licensing fees and royalties can take months or even years to be paid, meaning the revenue Arm receives from chip deals today could be delayed into the future.
This is the reason why Arm has not yet benefited to the extent that other chip companies like Nvidia have from the AI chip boom. As Reuters notes, the license fee Arm will receive from the chips it offers today to customers for use in high-end AI servers could take four years to turn into Arm’s revenue, according to CEO Rene Haas.
If so, it is not surprising that the company has not changed its previous guidance for FY25.
But despite the drop in Arm’s share price in pre-market trading this morning, the company has delivered good returns to investors who got in when it went public in September last year. Arms shares began trading at around $56 per share at the IPO and are up more than 155%.
Ahead of its Q1 earnings report yesterday, Arm shares closed at $144.17. In pre-market trading this morning, shares are currently sitting at around $132 as of this writing.
[ad_2]
Source link
