Arm Holdings’ Stock Drops on Lower Revenue Forecast, Impacting Investor Sentiment and Price Targets

Arm Holdings’ stock dropped 8% during pre-market trading due to a less-than-expected annual revenue forecast, causing a decline in investor sentiment following the company’s surge in value due to bets on increased AI computing. Arm’s market value is estimated to be approximately $110 billion, having doubled in price since its IPO last year. The UK-based chip designer generates income through licensing its chip designs and royalties, with a focus on expanding into the data centre market, where businesses are developing customised chips to power AI models and reduce dependency on Nvidia, the dominant supplier in the field. While Arm’s third-quarter financials exceeded expectations, its projection for revenue between $3.8bn and $4.1bn in the current year was below the consensus estimate, causing analysts to trim their price targets for Arm. Arm’s shares have a forward PE ratio of 64.68, higher than the industry median of 19.95, based on LSEG data. Nvidia and Advanced Micro Devices’ stocks also decreased by roughly 1% each in pre-market trading. Analysts suggest that AI demand may take some time to integrate into the company’s revenue stream due to the declining growth rate of the smartphone market.