MW Arm's outlook doesn't live up to the hype after the stock's big rally this year

By Emily Bary

Investors perhaps wanted more oomph in the forecast after Arm's stock rose 40% to start 2025

Following a roaring start to 2025, Arm Holdings PLC's stock could come back down to earth after earnings.

The chip designer's outlook for the current quarter bracketed the consensus view and may not have been enough to excite Wall Street after a 40% year-to-date rally in Arm shares $(ARM)$.

Arm projects $1.175 billion to $1.275 billion in revenue for the fiscal fourth quarter. Analysts tracked by FactSet had been modeling $1.221 billion. The company also is calling for 48 cents to 56 cents in adjusted earnings per share. The midpoint of that range lines up with the FactSet consensus of 52 cents.

Arm shares were off 5% in Wednesday's after-hours trading.

In the latest quarter, Arm beat expectations across both its business areas. The royalty business accounted for $580 million in revenue, versus the $568 million consensus view, while the licensing business accounted for $403 million in sales, versus the $838 million consensus.

In all, Arm brought in $983 million in revenue, up 19% from a year earlier and ahead of the $949 million that analysts had been modeling.

"New AI hardware, the rise of AI agents and the emergence of smaller, lighter language models are unlocking edge AI use-cases in smartphones, PCs, consumer electronics, automotive and industrial devices that are often distant from the cloud and untethered from the power grid," Arm said in its shareholder letter.

The recent DeepSeek breakthroughs have investors thinking more about compute efficiency, though big companies like Alphabet Inc. $(GOOG)$ $(GOOGL)$ say they were already focused on that.

Arm added in its shareholder letter that "AI-led cloud demand continues to increase, led by large-scale AI training and inference." The company last month announced that it would be part of the Stargate joint venture focused on building out AI infrastructure.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 05, 2025 17:34 ET (22:34 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.