Arm(ARM.US) Bets Big on AI Research, Q2 Outlook Disappoints and Stock Plummets over 8%
Zhitong Caijing APP has learned that Arm Holdings (ARM.US), the world's most widely used computer chip technology provider, due to increased investment in new product research, released a lower-than-expected Q2 profit guidance. This forecast surprised investors, causing the stock price to plummet over 8% after the market closed.
Arm Holdings published its first-quarter earnings report on Wednesday evening US time, showing that as of June, the company's revenue grew 12% year-over-year to $10.5 billion, with earnings per share (EPS) of 35 cents, meeting analysts' expectations.
The report shows that authorized income was $4.68 billion, down 1% year-over-year, but higher than analysts' average expectation of $4.56 billion; royalties from licensed intellectual property were $5.85 billion, up 25%, slightly lower than analysts' expectation of $5.95 billion.
The company expects Q2 revenue to be between $10.1 billion and $11.1 billion, with EPS guidance of 29-37 cents, lower than analysts' average expectation of 35 cents.
Arm is continuously increasing its expenditure to better grasp the opportunities in artificial intelligence (AI). Company CEO Rene Haas stated that Arm is committed to developing technologies that can consolidate its position in the AI field.
He noted that short-term increased spending will affect profits, but long-term it will drive the company's growth. "We have made a clear decision to increase investment and are accelerating research input," he said.
Prior to this, Intel (INTC.US) and Texas Instruments (TXN.US), among other chipmakers, had released disappointing earnings guidance, causing investors to worry about the potential impact of tariffs on AI-related demand growth. Haas stated that Arm has not yet seen any early release of demand related to tariffs, and he is confident in his investments in AI infrastructure.
Arm's stock price closed at $163.33 during regular trading hours, with a cumulative increase of 32% since 2025. The company had previously followed the chip sector's upward trend, with investors believing that it was an AI expenditure beneficiary.
Under Haas' leadership, Arm is attempting to transform into a more comprehensive semiconductor design provider, particularly focusing on data center chip designs, aiming to occupy a larger share in the growing AI infrastructure market.
Haas mentioned during his conference call with analysts that the "Stargate AI project" (Stargate AI project) brought opportunities. This plan is supported by OpenAI and SoftBank Group Corp., which includes large-scale data center construction. As a technology partner, Arm will provide comprehensive chip design solutions for these new facilities.
Haas refused to reveal more details, including the types of semiconductors involved and the release time.
Arm's income sources include two aspects: one is clients' use of its designs and standards, earning authorized fees; the other is royalties from licensed intellectual property per unit after chip production.
Arm technology has been long-term popular due to supporting low-power chip design, which naturally adapts to the highly demanding device market such as smartphones. A significant portion of royalties comes from this field. Analysts traditionally observe Arm's performance as a window into observing demand for the smartphone industry. Arm earns more when the market is robust; if it earns less, it may indicate weak demand.
However, some tech giants are now attempting to increase their independence and unique competitiveness by designing data center chips independently. Many of these companies are also Arm's authorized customers.
This UK-based company has shifted from providing basic technology modules and core technology licenses to chip manufacturers to offering more comprehensive design blueprints. Its goal is to make its products attractive to Amazon AWS, Microsoft, and other large enterprises, but this move will also mean encroaching on the territory of chip manufacturers like Qualcomm.