Arm Holdings Plunges 13% Amid Q2 Earnings Disappointment

Arm Holdings' Q2 earnings disappoint, with net income down 42% to $130mln and total revenues up 12% to $1.05bln. The company's CEO Rene Haas highlighted its performance in powering AI workloads, but the stock dropped 13.44% to close at $141.38. Arm Holdings is targeting a revenue range of $1.01bln to $1.11bln for Q2, a 19.67% to 31.5% increase from last year.

Arm Holdings (NASDAQ: ARM) reported its Q2 2025 earnings on July 2, 2025, with net income down 42% to $130 million and total revenues up 12% to $1.05 billion. Despite the revenue growth, the company's stock dropped 13.44% to close at $141.38. CEO Rene Haas highlighted the company's performance in powering AI workloads, but the market reacted negatively to the earnings report.

The company's Q2 revenue of $1.05 billion was a 12% increase year-over-year, driven by a 25% surge in royalty revenue to $585 million, primarily due to the adoption of the Armv9 architecture and growth in data center demand. However, license and other revenue declined 1% to $468 million. The adjusted earnings per share of $0.35 were in line with analyst expectations.

Arm Holdings' stock price decline can be attributed to the company's cautious Q2 guidance. The company expects adjusted earnings per share of $0.29 to $0.37 for the second quarter, which is below the Wall Street consensus of $0.36 per share. The company cited supply chain disruptions and softening smartphone demand as factors contributing to the weak outlook.

Additionally, Arm Holdings announced a strategic shift to manufacturing its own chips, moving beyond its core role of designing and licensing intellectual property (IP) for central processing units (CPUs) and graphics processing units (GPUs). This pivot, while ambitious, risks placing Arm in direct competition with its licensees, who depend on its designs to create competitive products. The company's move into chip manufacturing could erode trust among key clients and introduce significant financial risks.

The company's plans to produce "chiplets" and complete solutions through its Compute Subsystems (CSS) initiative target AI and cloud computing markets. However, this strategic pivot could disrupt its carefully built ecosystem and potentially drive major clients toward rival architectures like RISC-V, an open-source architecture gaining traction.

In summary, Arm Holdings' Q2 earnings report was mixed, with revenue growth but a significant drop in net income. The company's cautious guidance and strategic shift into chip manufacturing have investors concerned about the company's future prospects. The stock price decline reflects these concerns, and investors may find safer bets in the semiconductor space until Arm clarifies its strategic execution and stabilizes its ecosystem relationships.

References:
[1] https://finance.yahoo.com/news/arm-holdings-arm-stock-plunges-121548082.html
[2] https://247wallst.com/investing/2025/07/31/arms-soft-q2-guidance-sinks-stock-but-this-news-is-even-more-troubling/
[3] https://www.nasdaq.com/articles/rogers-rog-q2-revenue-beats-2