SUPERNEWS

Equities

ARM's Stock Dips Despite Beating Earnings, AI Revenue Up 47%

ARM's earnings reveal AI market slowdown, with stock down 47.8% from peak despite revenue growth driven by AI boom.

By Barry Stearns

ᐧ

5/9, 11:04 EDT
article-main-img

Key Takeaway

  • ARM Holdings PLC's stock fell 47.8% from its peak, showing decreased investor confidence despite beating earnings consensus and raising future projections.
  • Despite a 47% revenue surge in Q4 driven by AI, ARM's FY25 revenue forecast of $3.8-$4.1 billion falls short of the expected $4.01 billion.
  • Economic indicators show the BOE maintaining interest rates with potential cuts, and China's economy rebounding, affecting global market movements and tech spending on AI hardware.

Cracks in AI Enthusiasm

Arm Holdings PLC, a British semiconductor design firm primarily owned by SoftBank Group Corp, has recently shown signs of a slowdown in the artificial intelligence (AI) market, despite previously being a favorite among momentum investors. The company's latest earnings report revealed a gap down, indicating a decrease in investor confidence. This shift comes after a period of significant growth, with Arm's pivot to AI initially driving its stock value up. However, the company's stock has lost 47.8% of its value from its peak after the last quarter's earnings to its recent low. Despite beating consensus numbers for the prior quarter and raising projections for the current quarter above consensus, Arm's stock fell due to whisper numbers being much higher than the actual results. For FY25, Arm's guidance aligns with consensus numbers but falls short of the elevated whisper numbers.

Economic Indicators and Market Movements

The Bank of England (BOE) has maintained its key interest rate at 5.25%, with expectations of a rate cut in June. BOE Governor Andrew Bailey hinted at a potential for faster rate reductions than the market anticipates. This move by the BOE may influence the Federal Reserve's actions, regardless of data. Meanwhile, China's economy shows signs of rebounding, with exports increasing by 1.5% year-over-year, slightly above the consensus. In the stock market, early trading saw neutral money flows in Apple Inc, negative flows in Meta Platforms Inc and SPDR S&P 500 ETF Trust, with the momentum crowd buying stocks and smart money selling.

Arm's Financial Performance and Projections

Arm Holdings reported a 47% surge in fourth-quarter revenue, reaching $928 million and pushing annual revenue above $3 billion for the first time. This growth was driven by the AI boom, with royalty revenue from its V9 chip designs, used in smartphones, data centers, and AI chips, increasing by 37%. Despite these strong results, Arm's revenue forecast for FY25 fell short of expectations, projecting revenues between $3.8 billion and $4.1 billion against analysts' expectations of $4.01 billion. This projection has raised concerns about a potential slowdown in tech companies' spending on AI hardware.