(Bloomberg) — Arm Holdings Inc. shares plunge after the chip designer gave a lukewarm revenue forecast for the fiscal year, raising concerns that the tech industry's increased spending on artificial intelligence may be slowing. Concerns grew.
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The company announced Wednesday that it expects sales of $3.8 billion to $4.1 billion in fiscal 2025, which ends next March. Earnings will be between $1.45 and $1.65 per share. Analysts had expected total sales of $4.01 billion, an increase of 26%, and earnings of $1.53 per share.
As of 7:30 a.m. Thursday in New York, the stock was down 8.7%. Three months ago, a positive outlook sent the company's stock soaring and helped it become Wall Street's AI darling. The stock is up 41% this year through Wednesday's close.
Arm's chip design and licensing standards already serve as key technology for most smartphones. The UK-based company, under CEO Rene Haas, is looking to position itself as a bigger player in the data center hardware space. There, the demand for AI is spurring massive upgrades. As part of that push, Arm is providing a more complete technology blueprint to companies like Amazon.com Inc.'s AWS.
Mr. Haas said in an interview that Mr. Arm remains “very confident in its long-term growth.”
“A lot of the strategies we put in place a few years ago are all coming together,” he said.
Chief Financial Officer Jason Child said on a conference call with analysts that the company believes it can achieve revenue growth of at least 20% in fiscal 2026 and 2027.
The chip designer said it expects sales for the June quarter to be between $875 million and $925 million. This compares to the average analyst estimate of $868 million. Earnings per share, excluding certain items, were 32 cents to 36 cents. Wall Street had expected 31 cents.
Revenue for the fiscal fourth quarter ended March was $928 million. Earnings, excluding certain items, were 36 cents per share. This compares to average estimates of $880.4 million and earnings of 30 cents per share.
Arm has an unusual role in the semiconductor industry. License the basic instruction set that the software uses to communicate with the chip. The company also provides so-called design blocks that companies such as Qualcomm Inc. use to build products.
Arm is working towards providing a more complete layout that can be taken directly to the manufacturing stage. This change makes the company more competitive for customers like Qualcomm, but more valuable for other customers, especially large data center owners.
Arm, based in Cambridge, England, remains 90% owned by SoftBank Group, which bought the business for $32 billion in 2016. Its 2023 initial public offering raised $4.9 billion, making it the largest debut on a U.S. exchange that year.
Arm's license revenue rose 60% last quarter to $414 million, and royalty income rose 37% to $514 million.
Haas said licensing revenue represents a tech company's “confidence in research, development and investment.”
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