Key semiconductor stock declines despite upbeat earnings

Despite a spike in earnings, Arm Holdings, a significant semiconductor firm, has seen a decline in value. Nvidia made a bid of $40 billion to acquire Arm from Softbank in 2020, but European and American regulators vetoed the transaction. In September 2023, the business underwent a spin-off through an IPO, in which Softbank retained a 90% stake.

The stock was down 9% to $96.56 in after-hours trading after the company reported fiscal-fourth-quarter results. The company reported an adjusted profit of 36 cents a share on sales of $928 million in the quarter ended March 31.

Analysts had expected 30 cents a share on revenue of $866 million. In fiscal 2023, ARM earned an adjusted 2 cents a share on sales of $633 million. The stock’s drop seems tied to its revenue guidance for fiscal 2025: $3.8 billion to $4.1 billion, a slightly light on the Wall Street estimate.

The stock’s decline may be due to investors selling because of the light guidance, the full-year earnings per share being just $3.95, and the forward price/earnings multiple being about 70, making the stock too expensive. Arm is a healthy company with a gross-profit margin of north of 90% and sees revenue and earnings growing 20% for at least the next three years, with artificial-intelligence demands increasingly driving revenue growth.