The chip designer expects AI-driven data center growth to boost royalties, even as memory shortages continue to pressure the smartphone market.
Arm Holdings forecast first-quarter revenue slightly above Wall Street expectations, reflecting growing demand for its chip technology as global tech companies continue investing heavily in artificial intelligence infrastructure.
The company expects revenue of around $1.26 billion for the quarter, narrowly beating analysts’ estimates of $1.25 billion, according to LSEG data. The forecast initially lifted investor sentiment, sending Arm shares up 12% in after-hours trading.
However, the rally was short-lived. Shares later fell nearly 5.5% after company executives revealed that Arm had not yet secured enough supply capacity to fully meet demand for its newly launched AI-focused processor. Analysts also questioned the financial impact of Arm’s expansion into developing its own chips.
Arm generates revenue by licensing its chip architecture to technology giants such as Nvidia and Apple, while also collecting royalties on products built using its designs. Its processors are widely known for low power consumption, making them especially attractive for AI data centers that require massive computing power while managing energy use and heat generation.
The company’s technology already dominates the smartphone market, powering almost every smartphone globally. Still, ongoing memory chip shortages and weaker consumer electronics demand remain challenges for the industry and could affect Arm’s royalty income from mobile devices.
Despite these concerns, Arm remains optimistic about long-term AI growth. CEO Rene Haas said the company is seeing strong momentum in data center demand, with a significant increase in royalties linked to AI infrastructure.
Earlier this year, Arm introduced its AGI CPU, designed for advanced AI systems capable of performing tasks autonomously rather than simply responding to chatbot-style prompts. Haas said the company has secured enough manufacturing capacity to support about $1 billion worth of demand for the chip, though supply agreements for an additional $1 billion in expected orders are still pending.
