Arm Holdings (ARM) and Qualcomm (QCOM) stocks each fell more than 4% Thursday as their quarterly results showed signs the AI boom isn't yet driving a surge in demand for the consumer devices powered by the companies' chips. 

Despite their above-forecast quarterly earnings results the day prior, investors signaled they aren’t so patiently waiting to see if artificial intelligence will drive a new wave of demand for consumer devices that rely on the companies’ chips.

The pair of semiconductor companies — which are, coincidentally, engaged in an ongoing legal battle with one another — saw their stocks drop for various reasons. 

Arm issued in-line but slightly softer-than-expected earnings guidance for the current quarter, with the company saying it expects adjusted earnings per share of $0.48-$0.56 in its fiscal fourth quarter, versus the $0.53 expected, according to Bloomberg data. 

Revenue in its current quarter is set to come in between $1.18 billion-$1.28 billion; Wall Street forecasts were for revenue to hit $1.23 billion, the midpoint of that range. Arm also lowered the top range of its revenue outlook for its fiscal year 2025 to $4.04 billion from $4.1 billion, though it raised the bottom of the range to $3.9 billion from $3.8 billion. In other words, wrote Citi analyst Christopher Danley, a "healthy beat" in the current quarter was offset by "slightly softer" guidance for the current quarter.

Arm’s softer guidance raised fears of an AI infrastructure spending slowdown. While cheaper models like DeepSeek could drive down the cost of AI models and, in turn, benefit demand for smartphones and PCs, that cost-efficiency could mean cloud providers spend less money buying AI chips for data centers. Nvidia's (NVDA) Arm-based Grace CPUs are used in its latest servers alongside its Blackwell AI chips.

At the same time, Qualcomm’s outlook on revenue from its chips for smartphones showed growth in that segment slowing in the March period. 

The company’s handset segment saw revenue in its fiscal first quarter that ended Dec. 31 grow 13% to a record $7.6 billion. CFO Akash Palkhiwala said that segment will grow 10% in the current quarter.

“On a sequential basis, the decline in QCT handset [smartphone] revenues is primarily driven by seasonality and shipments to Apple,” Palkhiwala said. 

Apple (AAPL) has shifted to developing in-house chips for its smartphones, rather than relying on Qualcomm.

JPMorgan analyst Samik Chatterjee said the magnitude of Qualcomm’s earnings beat for the December quarter was “not enough to overwhelm investor concerns around extraneous factors,” such as Apple’s pivot and the expiration of its deal last year with Chinese smartphone maker Huawei.

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Wall Street analysts said an AI-driven demand cycle for smartphones could boost the companies amid their softer outlooks.

“The advent of lower-cost AI models like DeepSeek are expected to accelerate the spread of inferencing at the edge, through PCs, smartphones & IoT devices,” wrote Jefferies analyst Janardan Menon in a Thursday note. “AI-based applications are being developed for these devices faster, including industry-specific AI models that can be deployed locally for low latency and security.”

“We expect this trend to benefit Arm both from rising demand for more powerful v9 cores [a powerful processing unit used within semiconductors], and increased demand for these devices themselves, most of which are expected to be Arm-based,” he added. 

In other words, AI for smartphones is coming, and that could drive demand, in turn boosting business for Arm, which sells licenses for its computing chip designs.

Speaking about Qualcomm, Citi’s Christopher Danley was more skeptical of an impending AI-driven demand wave for smartphones.

“While the handset market appears decent, we believe a handset upgrade cycle is at least a year away given a lack of a 'killer app.' We have historically upgraded QCOM during a handset upgrade cycle, but we don’t believe one is imminent," he said.

Despite Arm’s dip Thursday, shares are still up nearly 130% from this time last year. Qualcomm is up a much more modest 17% from the prior year.

Arm stands to benefit from the recently announced Stargate project. Arm was named a key technology partner in the massive AI infrastructure project backed by its parent company SoftBank (SFTBY), along with Oracle (ORCL) and OpenAI. The three said the project will invest $500 billion over four years. 

And while fears of an AI spending slowdown persist, Big Tech is still spending big on AI infrastructure. Microsoft (MSFT), Meta (META), and Google (GOOG) together are set to spend nearly $230 billion in capital expenditures driven by AI in 2025. 

Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.

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