Arm and Qualcomm Drop on Earnings Misses Amid AI Cautiousness

Earnings Outlook Dampens Sentiment

Arm Holdings (ARM) and Qualcomm (QCOM) stocks declined Thursday after their earnings outlooks hinted at a slower-than-expected adoption of AI in consumer devices. ARM fell 3.8% early in the day, while Qualcomm slid 5%.

Despite reporting better-than-expected December quarter results, both companies' guidance for the current period raised concerns among investors. Arm's in-line earnings guidance, coupled with a slightly lower revenue outlook, sparked fears of a slowdown in AI infrastructure spending. Qualcomm's projection of slower growth in smartphone chip revenue also weighed on its stock.

AI Adoption in Question

Analysts had anticipated that AI would accelerate demand for smartphones and PCs, boosting revenue for Arm and Qualcomm. However, the companies' outlooks suggest that the expected AI-driven demand cycle remains elusive.

Arm's guidance highlights concerns that cheaper AI models could reduce data center spending on AI chips, potentially offsetting any potential increase in demand for smartphones and PCs. Qualcomm's revenue outlook indicates decelerating growth in its smartphone chip business, partly attributed to Apple's transition to in-house chips.

Long-Term Optimism Remains

Some analysts maintain a positive outlook, believing that AI for smartphones is inevitable and will eventually drive demand for Arm's chip designs. However, others question the timing of a major upgrade cycle for smartphones, citing a lack of compelling new features.

Despite the recent dip, Arm and Qualcomm stocks have performed well over the past year. Arm has gained approximately 130%, while Qualcomm has risen by a more modest 17%. Arm's involvement in the Stargate AI infrastructure project, along with continued investments by technology giants like Microsoft, Meta, and Google, suggests long-term potential.

Key Takeaway

Arm and Qualcomm's earnings results highlight the cautiousness surrounding AI adoption in consumer devices. While AI is expected to play a significant role in the future, the timing and impact on these companies remain uncertain. Investors should monitor the development of AI models and the industry's shift to in-house chip designs to assess the potential impact on Arm and Qualcomm's performance.