Despite a rocky start with shares initially dropping over 7% after Q4 results, Arm Holdings plc (ARM, Financial) saw a partial recovery as the trading session progressed. The dip was primarily due to the company's FY25 guidance, which only met, but did not exceed, analysts' expectations. This was somewhat disappointing given the current high demand across industries for AI technologies, where ARM has been a significant player.
Post initial decline, investor sentiment improved slightly as focus shifted to ARM's robust Q4 achievements:
- ARM's royalty revenue soared by 37% year-over-year, while licensing revenue jumped 60%, driven by the accelerated adoption of its Armv9 architecture—the first major update in ten years.
- The rapid advancement in AI technology, which outpaces hardware developments, is forcing companies to frequently update their hardware designs to handle AI workloads, benefiting ARM significantly.
- Overall, ARM reported a 47% increase in total revenue for Q4, reaching $928 million, which surpassed its forecast range of $850-900 million. For FY25, ARM projects revenues between $3.8 billion and $4.1 billion, indicating a 22% growth at the midpoint.
Despite the recovery in share price, ARM's guidance for FY25 still poses concerns. The company's performance has been stellar, particularly with major tech companies like Google (GOOG, Financial) and Microsoft (MSFT, Financial) incorporating ARM's technology in their newest data center chips for AI tasks. However, the guidance provided by ARM did not fully reflect the optimistic adoption trends discussed by management, leading to mixed reactions among investors.
The upcoming Q1 report from NVIDIA (NVDA, Financial), expected on May 22, could potentially influence ARM's stock further, depending on whether it indicates an increase in AI-related demand. This will be crucial for ARM as it navigates its position in a market where companies may be shifting focus towards maximizing returns on existing AI implementations rather than investing in new infrastructure.
