Arm Holdings Anticipates First-Quarter Sales Above Expectations
On May 6, Arm Holdings Inc indicated that it expects its first-quarter sales to surpass Wall Street projections, fueled by the increasing adoption of its chip technology as tech firms invest heavily in this area.
Initially, this news sent Arm shares up by 12%. However, the enthusiasm shifted after executives informed analysts during a conference call that the company hadn’t secured enough supply to meet the current demand for new chips. Analysts expressed concerns regarding the costs for chip designers trying to enter the market.
As a result, Arm shares dropped over 6% in premarket trading on Thursday as investors reflected on these comments and the forthcoming results.
The company is forecasting quarterly revenue of $1.26 billion, slightly ahead of the $1.25 billion that analysts anticipated, according to data gathered by LSEG.
Arm generates revenue through licensing its technology to firms like Nvidia and Apple, collecting royalty payments from all products built using their designs.
These chip architectures are valued for their relatively low power consumption — an essential advantage for data center operators who face rising pressure to manage increased energy demands and heat production while running large-scale AI models.
Arm’s designs are prevalent, featured in nearly every smartphone globally, and they hold a significant position in the handheld market.
However, it’s possible that Arm’s royalty income could decline due to a memory chip shortage that’s impacting the industry, causing prices for consumer electronics to spike and sales to stagnate.
Qualcomm, another smartphone chip manufacturer, recently reported a troubling sales outlook for the quarter due to memory challenges, yet its stock rose on optimistic remarks regarding demand recovery.
Arm’s stock has performed well this year, gaining over 91% and outperforming other significant chipmakers, including Nvidia, AMD, and Broadcom, as of Tuesday’s close.
Analyst Jay Goldberg from Seaport Research Partners noted, “Expectations were very high. It was a good number, but perhaps not good enough.” Arm’s fourth-quarter revenue reached $1.49 billion, which beat expectations of $1.47 billion.
Royalty income came in at $671 million, slightly below the anticipated $697.1 million, while license and other revenue hit $819 million, surpassing forecasts of $774 million.
Looking ahead, Arm anticipates first-quarter adjusted earnings per share of 40 cents, compared to Wall Street’s estimate of 36 cents.
As with many in the industry, Arm is entering the growing central processing unit market. The rise of AI agents has heightened the need for more robust general-purpose computing capabilities.
In an interview, Arm CEO Rene Haas shared optimism regarding data center demand. He mentioned that this quarter should see “pretty healthy growth in terms of royalties related to data centers.”
Earlier this year, Arm unveiled the AGI CPU, a new data center chip designed for specific types of AI that can operate autonomously rather than merely responding to queries. Haas stated that this chip could add billions to Arm’s revenue.
While Haas confirmed that Arm has secured sufficient production capacity to meet an initial $1 billion in demand for AGI CPUs, he noted that orders totaling $2 billion have not yet been secured.
According to Michael Ashley Shulman, a partner at Cerity Partners, “The market sees this as a party spoiler.” There might be supply down the line, but there are concerns about whether it will arrive swiftly enough to match demand as it increases.
