Arm shares tumble as downbeat revenue forecast clouds potential AI upside
Technology
Arm shares tumble as downbeat revenue forecast clouds potential AI upside
(Reuters) - Arm Holdings shares slumped 16% in afternoon trading on Thursday, after the British chip firm's tepid revenue forecast sparked concerns it may have to wait longer than some peers to gain from the boom in AI technologies.
At $121.36, the company's stock is set to lose nearly $24 billion of its market value if current levels hold. The stock had gained more than 90% this year up till the earnings report on Wednesday.
"The stock's premium valuation is likely to be pressured near-term given lack of upside drivers," said analysts at BofA Global Research, while maintaining a "buy" rating.
They said weakness in certain markets such as the internet of things (IoT), networking, and industrial is behind the near-term projections from Arm, as the company retained its full-year forecast.
Still, investors are hoping heavy investments in artificial intelligence by businesses materialize into higher sales for chip firms sooner than later.
Arm, which earns by licensing its chip designs and through royalties, has been expanding into the data center market where operators are looking to build their chips to power new AI models and reduce their reliance on dominant supplier Nvidia.
Arm CEO Rene Haas said on the post-earnings call on Wednesday it may take several years - roughly four years for AI server chips - to realize the windfall from designs it licensed this year.
Arm projected revenue between $780 million and $830 million for the current fiscal second quarter, compared with analysts' estimates of $804.1 million, according to LSEG data.
It, however, reported a higher-than-expected 39% revenue growth in its fiscal first quarter and analysts remained bullish.
At least 11 brokerages raised their price targets, and currently, more than half of the analysts covering Arm has a "buy" or higher rating, according to LSEG.
