Arm Holdings on Wednesday raised its near-term revenue outlook on stronger-than-expected demand for processors used in artificial intelligence workloads, but investor enthusiasm quickly cooled after company executives warned they have not yet secured the chip supply needed to meet demand for a new product. The comments on a post-results conference call and questions about the costs of potentially making chips itself sent the stock swinging — an initial 12% rally reversed, and shares were down more than 6% in premarket trading on Thursday.
The company said it expects first-quarter revenue of about $1.26 billion, just above the $1.25 billion analysts had been forecasting, and forecast adjusted earnings per share of $0.40, ahead of the $0.36 consensus compiled by LSEG. Arm reported fourth-quarter revenue of $1.49 billion, beating the $1.47 billion estimate, but some line items undershot forecasts: royalty revenue came in at $671 million versus expectations of roughly $697 million, while licensing and other revenue was $819 million, higher than the $774 million analysts expected.
Arm generates revenue by licensing its chip architectures to major customers such as Nvidia and Apple and collecting royalties on every product built using its designs. Its energy-efficient designs have become particularly valuable to data center operators seeking to manage the power and cooling demands of large-scale AI models. Executives said on the call that while demand is strong, they have not yet secured the manufacturing supply to produce a new chip that would address that market, prompting analysts to press management on whether Arm might move into chip production itself and what that would cost.
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The caution rattled investors after a year in which Arm shares have surged roughly 91%, outperforming rivals such as Nvidia, Advanced Micro Devices and Broadcom. “It was a very tough setup for them — the expectations were just so high,” said Jay Goldberg of Seaport Research Partners, noting that the quarter’s results were solid but fell short of the lofty hopes baked into the share price.
The report underlined how broader supply-chain dynamics are complicating the semiconductor industry’s AI-driven growth. A global shortage of memory chips has strained consumer electronics and handset sales, which can reduce royalty flows for Arm. Qualcomm last week flagged weaker near-term revenue because of memory shortages even as it expressed confidence demand would rebound — a dynamic that shows how component availability can ripple through the supply chain and affect design licensors and chipmakers alike.
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Arm’s predicament highlights the tension between surging demand for AI compute and the time it takes to secure manufacturing capacity. Foundries and equipment suppliers have been racing to expand output to serve AI chip orders, but capacity constraints persist. For Arm, the immediate market test will be whether it can lock in the supply agreements needed to translate stronger licensing interest into sustained royalty growth without taking on the heavy capital requirements of chip manufacturing.
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