Arm Holdings Gives Cautious Revenue Forecast Amid AI Chip Concerns

Amidst worries about decelerating spending on artificial intelligence (AI) computing, Arm Holdings Plc. has released a conservative revenue prediction for the ongoing period.

For the fiscal fourth quarter ending in March, the chip designer anticipates revenue between $1.18 billion and $1.28 billion. While exceeding a previous estimate and matching Wall Street's consensus, some analysts had projected revenue as high as $1.33 billion.

This outlook comes on the heels of a disappointing forecast from Advanced Micro Devices Inc. earlier this week, stoking concerns about the stability of the AI hardware market. The emergence of Chinese startup DeepSeek, which introduced a low-cost AI model last month, has raised the possibility that technology providers may not generate as much revenue as initially anticipated.

Following the market opening in New York on Thursday, Arm shares declined by up to 8.4% to $158.70. Prior to Thursday's close, the company had gained 40% year-to-date.

Arm's designs and standards underpin semiconductors that power most of the world's smartphones. Under CEO Rene Haas, the Cambridge, UK-based company has aimed to expand its presence in data centers and personal computer components to capitalize on AI expenditure.

Arm's majority owner, SoftBank Group Corp., is also reported to be in advanced discussions to acquire Ampere Computing LLC, a startup specializing in AI computing chips that would strengthen Arm's position in this growing market.

While acknowledging favorable market conditions, Haas emphasized the need for caution in setting targets, stating, "We're trying to be disciplined."

Arm's latest financial results significantly surpassed expectations. Revenue rose by 19% to $983 million in the quarter ending in December, surpassing analysts' projections of $946.8 million. Excluding special items, earnings per share reached 39 cents, higher than the average estimate of 34 cents.

Arm has become a prominent player in AI technology advancement as part of a US-based project called Stargate, which aims to develop AI infrastructure, alongside SoftBank and OpenAI. The company is also involved in a similar initiative in Japan, SoftBank's home market.

Despite its success, Arm remains embroiled in a legal battle with former partner Qualcomm Inc., which also reported its quarterly results on Wednesday.

Arm earns revenue through licensing fees and royalties for its technology, which governs chip and software communication. Last quarter, licensing revenue totaled $403 million, while royalty revenue amounted to $580 million, both exceeding estimates.

Two years after its initial public offering, SoftBank still owns approximately 90% of Arm.