Arm shares drop on lower-than-expected forecast

Has the AI chip boom plateaued?

Arm shares drop on lower-than-expected forecast

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Arm shares drop on lower-than-expected forecast

Shares in UK chip designer Arm fell by 7% yesterday after the company revealed a lower than expected revenue forecast.

The fall came despite Arm's Q4 revenues rising 47% to $928 million, exceeding analyst estimates of $875.6 million.

The company's licencing business also grew significantly, expanding to $414 million in Q4 (a 60% rise), thanks to four major deals being struck in the quarter, while its royalty segment jumped 37% to $514 million.

Overall, Arm's share price has doubled since its IPO and listing on Nasdaq in September 2023, thanks to the surge in AI computing which has boosted the fortunes of the semiconductor industry. The company's market value is now around $110 billion.

However, Arm is up against stiff competition against the likes of Nvidia, and the company's full-year revenue estimate of $3.8 billion - $4.1 billion, with a midpoint of $3.95 billion, was below consensus analyst figures of $3.99 billion.

See also: SoftBank looking to buy UK AI chip designer Graphcore, report

CFO Jason Child said the reason for the company offering a range was that the timing of some licencing deals was proving hard to finalise.

Arm chips are a feature of almost all smartphones and numerous other mobile devices, and the company is making strides in the datacentre. But its designs do not play a central role in AI computing in the same way as Nvidia's GPUs. This, and the lower-than-expected forecast, has led some investors to worry that the firm, or indeed the sector, might be overvalued.

Shares in other chipmakers (Nvidia - 0.6%, AMD -0.4%, Intel -0.2%) also edged slightly lower on the news.

SoftBank still owns 90% of Arm, leaving just 10% of its stock to be publicly traded. This scarcity value may have helped boost its share price over previous quarters.

"Arm's numbers really needed to be perfect for them to justify that valuation," said analyst Josh Koren of Musketeer Capital Partners. However, he added that a conservative forecast could help Arm meet or exceed expectations in future quarters.