According to AI Finance App, Arm Holdings, a leading chip design company listed on the US stock market last year, disappointed investors with its sales expectations for the current quarter, indicating that the sluggish recovery process in the smart phone chip market may overshadow the strong demand growth for ARM architecture chips closely related to artificial intelligence. Arm is one of the biggest winners in the global frenzy of deploying artificial intelligence by enterprises, with ARM architecture used by AI chip leader NVIDIA, as well as tech giants like Amazon, Microsoft, to design server-side CPUs that support AI workloads, driving Arm's stock price up over 93% since 2024, making it one of the most expensive stocks in the market. However, this also makes analysts increasingly demanding on Arm's performance growth expectations.

The company, in the post-market announcement of its performance on Wednesday, Eastern Time, revealed that Arm management expects the current quarter's sales forecast range up to December to be $0.92 billion to $0.97 billion. According to the analysis compiled by institutions, the midpoint of this expected range is slightly below the analysts' average expectation of $0.9509 billion. Excluding certain items, Arm management's earnings per share expectation range under non-GAAP guidelines is 32 to 36 cents, in line with the average analyst forecast of 34 cents.

Arm's performance for the second quarter of the 2025 fiscal year showed that in the three months leading up to September, the overall sales increased by about 5% year-on-year, reaching $0.844 billion, higher than the analysts' average estimate of approximately $0.8109 billion, during which time the royalties Arm is most dependent on surged by 25%, and future ARM architectural royalties are expected to continue to grow significantly. In the second quarter, excluding certain items, earnings per share under non-GAAP guidelines are 30 cents, higher than the analysts' average expectation of about 26 cents.

The chip design company headquartered in Cambridge, United Kingdom, maintained its annual performance expectations, with sales expected to be in the range of $3.8 billion to $4.1 billion. "We won't try to go too far," said Arm's CEO René Haas in an interview, referring to the performance outlook.

As of the New York Stock Market closing on Wednesday, Arm's year-to-date increase was as high as 93%, far outperforming the Nasdaq 100 index and the PHLX Semiconductor Index, ranking high among the most eye-catching U.S. chip stocks sectors this year. Following the lukewarm performance outlook announcement, Arm's stock price fell by over 5% in post-market trading.

Since its initial public offering last year, global investors have poured substantial funds into the stock, betting that Arm has the ability to reap huge benefits from the massive spending on artificial intelligence infrastructure by global cloud computing giants, internet behemoths, and other tech titans.

Artificial intelligence, dubbed as the core revenue engine of Arm.

The company's provided Reduced Instruction Set Computing architecture - ARM architecture, not only used for artificial intelligence servers at the CPU end, but also widely applied in various fields such as the global consumer electronics industry, and the internet of things, especially in the smartphone sector. This makes it susceptible to fluctuations in demand from different sectors. Most consumer electronics demand, including smartphones, is in a weak recovery or mild decline, undoubtedly lowering Arm's overall performance expectations.

Asml Holding's surprising financial report, along with the incredibly strong financial reports of chip giants like Broadcom and Taiwan Semiconductor, has revealed the latest trends in the global chip industry: the AI wave is still ongoing, especially the demand for all types of AI chips focused on B-end data center remains very high. However, in areas unrelated to AI such as electric vehicles, industrial sectors, IoT devices, and the widespread demand for consumer electronics products chips, demand remains weak or significantly declining.

Arm plays a unique role in the chip design industry: its design architecture and standards are the cornerstone of most semiconductor products used in smartphones worldwide. Under the leadership of CEO Haas, the company has been striving to expand its business scope into the highly profitable data center server market. The data center has proved to be Arm's current core revenue engine. As part of its licensing agreements, Arm not only provides instruction set architecture and design modules but also aims to offer complete chip design solutions for direct enterprise use. This ambitious shift aims to make Arm more profitable and reduce its heavy reliance on royalty-type sales.

Financial data shows that Arm's second-quarter licensing sales were around 0.33 billion US dollars, a 15% year-on-year decline. However, royalty sales were around 0.514 billion US dollars, a significant 23% increase year-on-year, exceeding analysts' expectations of 0.502 billion US dollars. This growth is largely attributed to the continuous penetration of Armv9 architecture into the AI server CPU field, with this architecture currently accounting for approximately one-fourth of the total sales in that sector.

Arm's official authorized parties pay a fixed licensing fee for the ARM instruction set architecture according to a set agreement, and then pay ARM royalties based on the type and scale of the final chip manufacturing, use, or sale. Therefore, some analysts suggest that Arm's licensing business is ahead of its royalty-related business, indicating that a significant portion of the current licensing sales will be converted into royalty business in the future.

Arm sells licenses for the core instruction set architecture for almost all smartphone mobile chips globally. The Reduced Instruction Set Computing processor architecture - ARM architecture is heavily used in the smartphone sector. However, the ARM architecture is increasingly appearing in the personal computer and data center AI server chip fields. Nvidia's in-house Grace CPU is based on the ARM architecture, Amazon's custom data center Graviton server processor also utilizes ARM architecture, and Microsoft's custom Azure Cobalt 100 AI chip designed for running cloud computing workloads on Microsoft Azure cloud servers is similarly built on ARM architecture. Riding on the wave of global AI investment, Arm has surged 93% this year, with a market cap exceeding 150 billion US dollars. Softbank, the largest shareholder, holds a stake of nearly 90%, making it the biggest winner since Arm's listing.

Arm is still held by the Japanese investment giant SoftBank Group Corp with approximately 90% of the shares. In 2023, Arm raised around 4.9 billion US dollars through its initial public offering, becoming the largest IPO on the American Stock Exchange that year.

In the AI datacenter server sector, the ARM architecture penetration rate is increasing.

Since the AI boom swept the globe in 2023, the footprint of the Reduced Instruction Set Architecture - ARM architecture has spread from the smart phone end to the AI data center server CPU end, with technology giants like Nvidia and Microsoft choosing to design server CPUs using the ARM architecture.

In the immensely massive data processing AI workloads, the 'computational power main forces' are essentially AI GPUs like Nvidia's H100/H200/B200 series, while CPUs often focus on efficient scheduling and processing. The architecture of GPUs, which excels at parallel computing and is suitable for executing a large number of matrix and vector operations, thus shoulders heavy responsibilities when handling intense AI tasks with 'data bomb' intensity.

The architecture foundation of CPUs determines that server CPUs can not only perform general computing tasks but also focus on control flow and scheduling characteristics when handling complex sequential computing tasks and logical decision-making in the explosive field of AI inference/training where computational demand is surging.

The Reduced Instruction Set Computing architecture adopted by ARM allows server CPUs designed based on it to have significant advantages in energy efficiency and low power consumption compared to Intel's x86 architecture when executing AI inference/training tasks. This characteristic makes the ARM architecture particularly suitable for the data center server field, efficiently complementing AI GPUs to meet the almost endless demand for AI inference/training computational power.

Especially, ARM's latest instruction set architecture ARMv9 is designed for handling extremely complex AI workloads, significantly accelerating artificial intelligence data processing and optimizing power consumption, which is why ARMv9 can contribute up to 25% of revenue from royalty type sales. ARMv9 introduces the SVE2 instruction set, which brings a significant leap in performance in applications in AI and machine learning that require a large number of matrix operations.

With the widespread adoption of generative AI and machine learning technologies globally, the demand for energy-efficient and low-power server CPUs that specialize in efficient scheduling in large data centers is sharply rising. According to the latest market analysis by IDC, it is expected that by 2028, global AI expenditures will reach approximately $632 billion. Arm, as the world's most core CPU design company, with hardware products based on ARM architecture widely used in various AI-related devices, from smart phones to PCs, and to large data center servers like Amazon's AWS and Microsoft's Azure, its influence will continue to benefit from the AI boom.

According to the well-known research institution IDC's latest forecast in the "Global Artificial Intelligence and Generative Artificial Intelligence Spending Guide", the organization expects that by 2028, global artificial intelligence (AI) related spending (with a focus on applications supported by artificial intelligence, AI chips, artificial intelligence infrastructure, as well as related IT and business services) will at least double compared to the current level, reaching approximately $632 billion. Artificial intelligence, especially Generative Artificial Intelligence (GenAI), is rapidly integrating into various terminal devices and products. IDC predicts that global artificial intelligence spending will achieve a compound annual growth rate (CAGR) of 29.0% during the forecast period of 2024-2028.

Morgan Stanley has listed Arm as a "preferred large cap stock" in the US, with a bullish outlook of $175.

Morgan Stanley, arguably Wall Street's most bullish financial giant on Arm, recently added Arm to its new "preferred large cap US stock" list. The main reasons include the recovery of the mobile market, new opportunities in edge AI, and the resulting growth in royalties. Morgan Stanley maintains its "shareholding" rating and a 12-month target price of $175. As of the US stock market closing on Wednesday, Arm's stock price closed at $144.68.

Morgan Stanley believes that Arm will not only continue to benefit in the mobile CPU field but also anticipates that in the next two to three years, an increasing use of customized AI chips (such as AI PCs, AI smartphones, etc., in the edge AI field) will also be a strong driver for Arm's royalty growth (including shifting to higher royalty rates).

Another well-known investment institution on Wall Street, Raymond James, has given the company an "outperform" rating and a 12-month target price of $160. The analysts at this institution state that as a major supplier of energy-efficient processor/subsystem IP, Arm is in a very favorable position. They also predict that Arm will benefit significantly from cloud data center servers and edge AI.

In addition, with Trump securing victory in the US presidential election, promising reduced regulations and taxes on major companies, increased oil production, and strict immigration policies, indicating strong economic growth and inflation, which are seen as bullish factors for the stock market. Industries like banks, technology, defense, and fossil fuels may benefit, especially in technology. According to Trump's policy framework, the US government under his leadership is highly likely to accelerate the development of cutting-edge technological innovations in areas such as AI, quantum computing, nuclear fusion, and aerospace.