Shares of Arm Holdings (ARM) plummeted more than 9% in extended trading on May 7, 2025, following the company’s announcement of weaker-than-expected revenue guidance for the upcoming fiscal quarter. Despite reporting a strong fiscal fourth quarter, the outlook has left investors uneasy, highlighting the challenges the chip designer faces in an increasingly competitive market.
For the quarter ending March 31, Arm posted adjusted earnings per share (EPS) of 55 cents, exceeding analysts’ expectations of 52 cents. Revenue for the quarter reached $1.24 billion, slightly surpassing the forecast of $1.23 billion. This marked a significant achievement for Arm, as it was the first time in the company’s 35-year history that quarterly revenue exceeded $1 billion. Year-over-year, Arm’s earnings rose by an impressive 53%, while sales jumped 34%.
However, the company’s guidance for the fiscal first quarter raised eyebrows. Arm anticipates revenue between $1 billion and $1.1 billion, with adjusted earnings projected at 30 to 38 cents per share. This forecast falls short of Wall Street’s expectations, which had anticipated earnings of 42 cents per share and revenue of $1.1 billion. The disappointing outlook has sparked concern among investors, leading to a notable drop in stock prices.
SoftBank, which controls approximately 90% of Arm, took the company public in 2023, and as of May 7, Arm boasts a market cap exceeding $130 billion. The company’s business model primarily revolves around licensing its chip designs to major semiconductor firms and smartphone manufacturers, including Qualcomm and Nvidia. Arm claims that 99% of premium smartphones utilize its technology, underscoring its significant presence in the industry.
In its latest quarter, Arm’s royalty revenue surged by 18% from the previous year, totaling $607 million. Additionally, licensing and other revenue grew by 53% to $634 million. "With more AI software being written first for Arm-based chips, we expect close to 50% of all new server chips shipped to top hyperscalers this year will be Arm-based," stated Chief Executive Rene Haas and Chief Financial Officer Jason Child in a shareholder letter.
Despite the positive growth in revenue, the company’s net income saw a decline of 6%, falling to $210 million, or 20 cents per share, down from $224 million, or 21 cents, in the same quarter last year. Analysts had anticipated a stronger performance given the overall growth trajectory of the company.
Arm’s stock performance in 2025 has been relatively stagnant, with shares up less than 1% through May 7. The recent downturn in stock price reflects broader concerns about the company’s ability to maintain its growth amidst global economic uncertainties, including tariff issues and trade tensions that have begun to impact its core customer base.
Analysts have expressed mixed sentiments about Arm’s future. The company currently holds a consensus Moderate Buy rating among eight Wall Street analysts, based on six Buy, one Hold, and one Sell recommendations issued in the last three months. The average price target for Arm stock is $147, suggesting an upside potential of approximately 18.74% from current levels. However, these ratings may shift following the release of the company’s financial results.
As Arm navigates through these tumultuous waters, its success will largely depend on its ability to adapt to market demands and the competitive landscape of the semiconductor industry. The company’s diversification strategy, which includes targeting various end markets such as data centers, automotive, smartphones, and the Internet of Things, appears to be a key component of its growth strategy.
Looking ahead, investors and analysts alike will be watching closely to see how Arm manages to balance its ambitious growth plans with the realities of a challenging market environment. The upcoming fiscal quarter will be crucial for the company as it seeks to reassure stakeholders and regain investor confidence.
In summary, while Arm Holdings has demonstrated impressive growth in its recent fiscal quarter, the company’s disappointing revenue guidance for the upcoming quarter has raised concerns among investors. As the semiconductor market continues to evolve, Arm’s ability to adapt and thrive will be put to the test in the coming months.
