Arm Gives Muted Forecast, Spurring Concerns of AI Slowdown

Arm Holdings plc (NASDAQ: ARM), a leading semiconductor and intellectual property (IP) company, recently reported its fiscal third-quarter earnings and provided guidance for the coming year. While the company's results were generally in line with expectations, its outlook for the next fiscal year raised concerns about a potential slowdown in the artificial intelligence (AI) market. This article will delve into the details of Arm's earnings report, its guidance for the coming year, and the implications for the broader AI market.

Arm's fiscal third-quarter earnings report showed revenue of $983 million, up 19% year-over-year, and earnings per share (EPS) of $0.39, surpassing analyst estimates. The company's royalty revenue grew 23% to $580 million, while its license and other revenue increased 14% to $403 million. Arm also raised its midpoint for fiscal 2025 revenue guidance to $3.99 billion, up from $3.95 billion previously, and adjusted EPS guidance to $1.60, up from $1.55.

However, Arm's guidance for the coming fiscal year raised concerns about a potential slowdown in the AI market. The company expects revenue growth of 20% in fiscal 2026 and 2027, down from the previous consensus estimate of 25% growth. This guidance suggests that Arm is less confident in the AI market's growth prospects than previously believed.

Arm's muted forecast comes as the AI market faces several headwinds, including concerns about AI capital expenditure (capex) and increasing competition from other chipmakers like Intel and Advanced Micro Devices (AMD). Additionally, the size of the total addressable market (TAM) for AI-powered personal computers (PCs) may not be as strong as initially believed, as indicated by feedback from rival Qualcomm and increasing competition from other chipmakers.



Arm's guidance for fiscal 2026 and 2027 also has implications for the broader AI market. The company's revenue growth rate of a minimum of 20% in fiscal 2026 and 2027 may not be sufficient to support a higher valuation for the stock. Additionally, the potential slowdown in AI spending could impact other semiconductor companies that rely on AI-related revenue.



In conclusion, Arm's muted forecast for fiscal 2026 and 2027 has raised concerns about a potential slowdown in the AI market. The company's guidance suggests that the AI market may not be as strong as previously believed, and investors may be looking for stronger guidance from other companies in the sector to support a higher valuation. As the AI market continues to evolve, investors should closely monitor the performance of companies like Arm and their guidance for the coming year.