Arm and Qualcomm Stocks Fall on Soft Earnings and AI Outlook Concerns

Key Points:

* Arm Holdings (ARM) and Qualcomm (QCOM) shares declined on Thursday following earnings reports that underwhelmed investors.
* Both companies reported strong quarterly results but provided cautious outlooks for the current period.
* Investors are skeptical about AI driving significant demand for consumer devices in the near term.
* Arm's revenue guidance for the March quarter slightly missed expectations, while its fiscal year 2025 revenue outlook was reduced at the top end.
* Qualcomm's smartphone revenue growth forecast slowed for the March period.
* Analysts cite the potential for lower-cost AI models to delay an AI-driven demand cycle for smartphones.

Semiconductor Outlook Weighs on Arm and Qualcomm

Arm and Qualcomm, semiconductor companies engaged in an ongoing legal battle, reported mixed earnings for the December quarter. While they exceeded Wall Street expectations in terms of revenue and earnings, their outlooks for the current period raised concerns.

Arm's earnings guidance for the March quarter fell short of estimates, and it lowered its top-end revenue outlook for fiscal year 2025. Qualcomm also issued a more cautious outlook for its smartphone revenue growth.

AI Adoption Outlook Raises Questions

Investors are questioning whether AI will drive a significant demand wave for consumer devices, which rely on the companies' chips. While lower-cost AI models like DeepSeek could potentially benefit smartphones and PCs, they could also lead to decreased spending on AI chips for data centers.

Analysts are divided on the potential impact of AI on demand for Arm and Qualcomm's products. Some believe it will create opportunities, while others are more skeptical in the near term.

Despite Setbacks, Arm and Qualcomm Maintain Optimism

Despite the soft outlooks, Arm and Qualcomm remain optimistic. Arm stands to benefit from the Stargate AI infrastructure project, backed by SoftBank and others. Qualcomm emphasizes its strengths in the smartphone market and the potential for AI to enhance its offerings.

Overall, Arm and Qualcomm's earnings reports highlight the challenges facing the semiconductor industry amid uncertainties surrounding the adoption of AI.