- Shares of British chip designer Arm dipped approximately 3% on Thursday despite a strong sales quarter propelled by the burgeoning demand for artificial intelligence (AI) applications. Arm reported a robust fiscal fourth-quarter revenue of $928 million, marking a significant 47% year-over-year increase, fueled particularly by its licensing business, which surged by 60% to $414 million. The company attributed this growth to the signing of several high-value license agreements for AI chips. Additionally, Arm's royalty revenue experienced a notable 37% year-over-year increase to $514 million, driven by the expanding adoption of its newly introduced Armv9-based chips boasting higher margins.
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However, investors were underwhelmed by Arm's revenue guidance for fiscal 2025, expecting it to range between $3.8 billion and $4.1 billion, slightly below analysts' consensus of $3.99 billion. Similarly, for the current quarter, Arm anticipates sales of $875 million to $925 million, surpassing estimates of $857.5 million. Citi analysts emphasized the significance of Arm's strong licensing business for future royalty growth, reaffirming their buy rating on the stock. Arm, often dubbed the "Switzerland" of the semiconductor industry, designs chip architectures and licenses them to other chipmakers like Qualcomm and Nvidia, generating royalty fees on each sale.
Why it matters
Founded in 1990 in Cambridge, England, Arm was acquired by Japanese tech investor SoftBank in 2016 for $32 billion. SoftBank subsequently took the company public on the Nasdaq in September 2023, with Arm's shares surging more than doubled since its IPO, reflecting the soaring demand for advanced AI-capable chips.
