Arm shares slump as weak forecasts fuel investor worries

(Reuters) - Arm shares sank 9% in premarket trading on Thursday after the chip technology provider issued a weak revenue forecast and joined other semiconductor companies in warning about a hit from tariffs-driven economic uncertainty. The move aligns Arm with companies such as Apple and Advanced Micro Devices, which have flagged additional costs due to the U.S.-China tariff war hurting tech supply chains.

Arm derives revenue from licensing fees for its chip designs and collects a royalty for each chip sold that uses its technology.

Its revenue faces a threat as smartphones, which use its designs, grapple with slower sales as prices rise due to tariffs.

Counterpoint Research said in April it expects the smartphone market to decline this year due to economic uncertainty from tariffs.

"Royalties will likely face tariff-driven end demand headwinds, offset somewhat by Arm's strong pricing/royalty rate inflation," Citigroup analysts said in a note.

To offset the demand fluctuations with smartphones, Arm has been trying to make inroads into artificial intelligence data centers.

Arm CEO Rene Haas told Reuters the below-expectations guidance is due to a large licensing deal that may not close during the fiscal first quarter.

"We remain engaged on the LT (long-term) story, but caution that the high consumer exposure leaves the company particularly vulnerable to the macro," Barclays analysts said.

At least three brokerages cut their price targets on the stock, bringing the median to $144.5, according to data compiled by LSEG.

ARM shares trade at 58.76 times the estimates of its earnings for the next 12 months, compared with Nvidia's 24.49 and AMD's 20.96.

So far this year, ARM has gained nearly 1%, compared with Nvidia and AMD's loss of nearly 13% and 17%, respectively, in the same period.

(Reporting by Kanchana Chakravarty and Zaheer Kachwala in Bengaluru)