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Arm Holdings reported stronger quarterly results and issued a first-quarter revenue forecast above Wall Street expectations, supported by wider use of its chip technology in artificial intelligence data centers. However, the stock reversed after management raised supply concerns tied to its new data center chip.
Arm Holdings closed at $237.30, up 13.63%, after gaining $28.46 during regular trading. The stock later fell 5.09% to $225.21 in pre-market trading as investors reviewed guidance, chip supply, and future costs.
Arm expects first-quarter revenue of $1.26 billion, slightly above analysts’ estimate of $1.25 billion, according to LSEG data. The company also forecast adjusted earnings of 40 cents per share, above Wall Street estimates of 36 cents.
The outlook followed a fourth-quarter beat. Arm reported fourth-quarter revenue of $1.49 billion, compared with estimates of $1.47 billion. Adjusted earnings reached 60 cents per share, above the expected 58 cents.
Arm earns revenue by licensing its chip technology to companies such as Nvidia and Apple. It also collects royalty payments for every product built with its designs.
However, royalty revenue missed expectations. Arm reported $671 million in royalty revenue, below analyst estimates of $697.1 million. Licensing and other revenue reached $819 million, topping estimates of $774 million.
Arm continues to benefit from rising AI infrastructure spending. Technology companies need more general-purpose compute power as artificial intelligence agents require systems that can process more tasks.
Data center operators also face pressure from rising energy use and heat output. Arm’s chip architectures consume relatively low power, which makes them useful for large AI systems.
Arm CEO Rene Haas said the company remains positive on data center demand. “We are very bullish about this data center demand,” Haas said. He added that the current quarter includes a ‘pretty healthy uptick’ in data center royalties.
Earlier this year, Arm announced the AGI CPU, a data center chip designed for AI systems that can act for users with limited oversight. The company has said the chip could add billions of dollars in revenue.
Arm said demand for the AGI CPU reached $2 billion across fiscal 2027 and fiscal 2028, double its earlier target. However, the company has secured enough capacity for only $1 billion of that demand.
Haas said Arm has not yet secured supply for the second $1 billion in orders. That update weighed on the stock after its initial post-earnings jump.
“The market sees that as a party spoiler,” said Michael Ashley Schulman, partner at Cerity Partners. He said Arm may secure the needed supply, but investors doubt whether it can happen fast enough.
Analysts also questioned the costs linked to Arm’s move into making its own chips. The company has long focused on licensing chip architecture, so a shift toward chip production adds new cost questions.
Arm’s designs power virtually every smartphone in the world, giving the company a major role in the mobile market. However, a shortage of memory chips has strained the electronics industry.
Higher memory prices have weighed on consumer electronics and slowed some device sales. That may reduce Arm’s royalty income if fewer products using its designs reach customers.
Memory-related pressure led Qualcomm to recently issue a weak quarterly revenue forecast. However, its stock rose after the company gave upbeat comments on a possible demand rebound.
Arm's shares had gained more than 91% this year as of Tuesday’s close, beating major chip names including Nvidia, Advanced Micro Devices, and Broadcom. Still, Seaport Research Partners analyst Jay Goldberg said, “They were good numbers, but not good enough,” as high expectations limited the market’s reaction.
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