Arm Shares Drop on AI Chip Supply Concerns Despite Positive Revenue Forecast
Market Reaction and Company Outlook
May 7 (Reuters) - Arm Holdings tumbled on Thursday on investor worries about the company's ability to secure sufficient supplies for its new AI chip to meet demand, overshadowing its strong forecast.
U.S.-listed shares of the chip designer fell 5.6% to $224.05 in premarket trading after executives said late Wednesday that they had not secured enough supplies to meet the demand for a new chip.
AI Chip Supply Challenges
Arm, which launched the chip called AGI CPU for so-called agentic AI earlier this year, had enough capacity to fulfill the first $1 billion of demand, but had not yet secured it for the second billion dollars' worth of orders, CEO Rene Haas said.
Impact on Smartphone Segment
The company also predicted slightly negative numbers in smartphones during the call. Arm's designs power the majority of smartphones in the world, but a shortage of memory chips has weighed on the industry, driving up prices of electronics and slowing sales.
Financial Performance and Forecast
Arm shares have more than doubled this year, outperforming other chip majors. The firm forecast first-quarter revenue above Wall Street expectations, banking on higher adoption of its chips.
Revenue Sources
A big portion of Arm's revenue comes from licensing its technology to companies such as Nvidia and Apple and collecting royalty payments on design use.
Analyst Insights
Morgan Stanley analysts said fourth-quarter royalties were weaker than expected, while the company's high operating expenditure growth trend was below expectations, suggesting the company was slowing the growing rate of spending for long-term needs.
(Reporting by Twesha Dikshit in Bengaluru; Editing by Leroy Leo)
