Arm sinks as chip ambitions, muted forecast shake investor confidence
Arm's decision to ramp up investment in chip creation marks a significant pivot from its legacy business model of licensing intellectual property to tech heavyweights like Nvidia (NVDA.O), opens new tab and Amazon.com (AMZN.O), opens new tab, companies that already design their own chips.
Potential conflicts of interest could arise as Arm's chip strategy positions it to compete with its own customers, said analysts at J.P. Morgan led by Harlan Sur.
"The (Arm) team remains focused on system-level, software, and AI initiatives. However, we are increasingly concerned with its strategy to develop full chip solutions," Sur said.
Arm forecast fiscal second-quarter profit slightly below Wall Street estimates, as escalating global trade tensions threaten demand in its core smartphone market, disappointing investors who had driven the stock sharply higher in recent months.
Arm has jumped 150% since its stock market debut in 2023, and has risen 32.4% so far this year, compared with gains of about 34% for Nvidia (NVDA.O), opens new tab and 49% for AMD (AMD.O), opens new tab.
The shares trade at over 80 times the earnings estimates, much higher than rivals Nvidia's 34.91 and AMD's 35.33.
Arm's subdued forecast highlights the uncertainty facing global manufacturers and supply chains amid ongoing U.S. trade tensions.
At least two brokerages raised their price targets on the stock, bringing the median to $155, according to data compiled by LSEG.
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