Arm Holdings (ARM), the semiconductor and chip design company, delivered better-than-expected fourth-quarter results on Wednesday. The stock initially surged about 12% in after-hours trading. However, shares later reversed course and fell more than 8% in early trading on Thursday as investors focused on supply constraints and concerns surrounding the company’s growing AI chip ambitions.
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Trade NVDA with leverageFor context, Arm reported adjusted earnings of $0.60 per share on $1.49 billion in revenue. That compares with analyst expectations of $0.58 per share on revenue of $1.47 billion.
Supply Constraints Raise Investor Concerns
During the earnings call, CEO Rene Haas said demand for Arm’s first in-house AGI (Artificial General Intelligence) CPU has already surpassed $2 billion just six weeks after launch.
However, management also acknowledged that the company is still working to secure enough wafers, memory, and advanced packaging to fulfill those orders. Due to these supply chain bottlenecks, Arm maintained its original $1 billion revenue target for the product line through the end of Fiscal Year 2027.
That gap between demand and expected revenue appeared to raise concerns on Wall Street about how quickly the company can scale production.
Arm’s AI Chip Push Brings Higher Costs
For years, Arm mainly operated as a licensing business, earning royalty fees from companies like Apple (AAPL), Qualcomm (QCOM), Nvidia (NVDA), and Samsung that used its chip designs. Now, the company is moving deeper into making its own AI chips to capture a bigger share of the fast-growing AI data center market.
This shift brings higher costs and new risks. Instead of simply licensing designs, Arm now has to spend more on chip design, production, and securing advanced 3nm wafers from Taiwan Semiconductor (TSM).
While the move could create a long-term growth opportunity, analysts remain concerned that these higher costs could pressure profit margins if growth slows.
Is ARM Stock a Good Buy?
Notably, Arm stock has surged more than 115% this year, setting a very high bar for earnings. For now, investors appear to be waiting for clearer signs that the company can meet rising AI demand while keeping profits strong.
Turning to Wall Street, analysts have a Strong Buy consensus rating on ARM stock based on 18 Buys, three Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ARM price target of $188.52 per share implies 20.55% downside risk. However, it’s worth noting that estimates will likely change following today’s earnings report.
