Arm shares drop as revenue forecast falls short despite AI boom

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Shares in Arm dropped by as much as 10 per cent after the UK chip designer issued lacklustre revenue projections for the coming year, raising concerns that tech companies’ spending on artificial intelligence hardware could slow down.

The SoftBank-backed group, which has been one of the biggest beneficiaries of an AI spending boom since it listed on Nasdaq in September, forecast revenues of between $3.8bn and $4.1bn for the year to March 2025. Analysts had expected revenues of $4.01bn.

The share price fall in after-hours trading on Wednesday came despite Arm reporting a 47 per cent surge in fourth-quarter revenue to $928mn. That pushed annual revenue to more than $3bn for the first time and exceeded its own guidance of between $850mn and $900mn.

The results are Arm’s third since its blockbuster IPO, which valued it at $65bn and marked the biggest US listing in almost two years. Since then its market capitalisation has soared, reaching a peak of about $117bn in February. Its market value on Wednesday before the earnings announcement was $109bn.

Chief executive Rene Haas said that as AI software models such as OpenAI’s ChatGPT and Meta’s Llama, “become larger and smarter, their requirements for more compute with greater power efficiency can only be realised through Arm”.

In a call with shareholders, Haas said: “The AI tailwind delivered unprecedented growth for our business. The growth and outlook for the company could not be brighter.” He cited accelerating revenues from royalties for its newest chip designs in its smartphones and infrastructure businesses, as well as growth in demand in chips that power data centres and autonomous vehicles.

Chief financial officer Jason Child said Arm expected to maintain total revenue growth of at least 20 per cent year on year in fiscal years 2026 and 2027.

Revenues in the latest quarter were boosted by a surge in royalties for its V9 chip designs, which are licensed to power smartphones, data centres and AI chips manufactured by companies including Nvidia and Amazon to run large language models. Arm sells chip design licences to manufacturers that pay royalties on each unit shipped. Royalty revenue rose 37 per cent to $514mn in the quarter. Arm said chips based on its V9 technology now contribute a fifth of its royalty revenues, compared with 15 per cent in the previous quarter.

Arm had revised up its revenue guidance for the fourth quarter in February due to the surging demand for new AI applications that had driven higher demand for its chip architecture.

Shares in AI chip manufacturers such as Nvidia and AMD have rallied this year as tech companies outlined plans to keep spending heavily on AI computing infrastructure, raising forecasts for capital spending in 2024 by billions of dollars.

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