Arm shares tumbled 5% Thursday to $225.43 after the British chip designer warned of smartphone market weakness and supply chain constraints for its new AI chip. The drop threatens to erase more than $12 billion from Arm's $252 billion market valuation.
Arm has more than doubled this year, outperforming peers, fueled by its push into AI with a new data center chip for agentic AI systems. CEO Rene Haas stated the company has capacity for the first $1 billion in demand but lacks supply for orders beyond that, needing access to manufacturing capacity, wafers, and testing equipment.
The AI chip, produced by Taiwan Semiconductor on a 3-nanometer process, is expected to generate over $2 billion across fiscal 2027 and 2028. Arm predicted slightly negative smartphone sector figures, as memory chip shortages drive up electronics prices and slow sales.
Despite the headwinds, Arm reported a record Q4 revenue of $1.49 billion and forecast Q1 revenue above Wall Street estimates. At least 14 brokerages raised their price targets. Arm's revenue largely comes from licensing its designs to Nvidia, Apple, and others.