Arm Holdings (NASDAQ: ARM), the global leader in semiconductor design intellectual property, recently navigated a critical moment with the release of its latest financial results. Despite reporting figures for the fourth fiscal quarter that slightly exceeded Wall Street’s average expectations, the company’s forecast for the upcoming 2025 fiscal year failed to deliver the kind of blockbuster surprise that investors, perhaps with already sky-high hopes, were anticipating. This apparent gap between ambitious market expectations and the company’s projected outlook appears to have triggered a wave of disappointment, leading to a noticeable pullback in Arm‘s share price, which fell by over 7% in post-market trading immediately following the earnings announcement on Wednesday, May 8th.
Delving into the details of the report for the fourth fiscal quarter, which concluded on March 31st of the current year, Arm posted robust results. The company recorded total revenue of $928 million, marking a significant 21% increase compared to the same period last year. This performance comfortably surpassed the guidance range of $850 million to $900 million previously set by the company’s executives. On the profitability front, Arm delivered non-GAAP earnings per share (EPS) of $0.36, also coming in above the management’s earlier forecast of $0.28 to $0.32 per share.
A closer look at the revenue breakdown reveals dynamic growth across Arm‘s core business segments. Royalty revenue, generated from chips already licensed and shipped by its partners, reached $514 million, climbing an impressive 37% year-over-year. Meanwhile, License revenue, derived from new agreements for the use of Arm‘s technology, surged to $414 million, representing a remarkable 60% year-over-year growth. Arm highlighted that this substantial increase in license revenue reflects the successful negotiation of “multiple high-value license agreements,” particularly those tied to the burgeoning field of artificial intelligence (AI) applications in chip design.
For the full fiscal year ended March 31st, 2024, Arm reported total revenue of $3.23 billion, a solid 21% increase from the prior year. Within this full-year figure, Royalty revenue grew by a steady 8%, while License revenue demonstrated strong momentum with a 43% increase.
However, the market’s focus quickly shifted from the past performance to the future outlook. Arm‘s executives provided guidance for the first fiscal quarter ending June 30th, projecting revenue in the range of $875 million to $925 million and adjusted EPS between $0.32 and $0.36. For the full fiscal year ending March 31st, 2025, the company forecasts revenue between $3.8 billion and $4.1 billion, with adjusted EPS expected to be in the range of $1.45 to $1.65.
Comparing this guidance to Wall Street expectations (as compiled by FactSet), analysts on average were anticipating Q1 revenue of $866 million and EPS of $0.31, figures that fall within Arm‘s provided range. For the full 2025 fiscal year, the consensus analyst forecast stood at approximately $3.97 billion in revenue and $1.54 in EPS. While Arm‘s guidance ranges technically encompass these average analyst figures, the high end of the revenue and EPS forecasts apparently weren’t sufficiently aggressive to satisfy a market that had perhaps priced in an even steeper growth trajectory, leading to the post-earnings sell-off.
The company’s stock performance since its initial public offering (IPO) in September of last year at $51 per share has been notable, having risen by approximately 80% up to its closing price on Friday, May 10th. Despite pulling back significantly from its 52-week high of $164.00 reached in March, to close last Friday at $108.84 (registering a +5.07% gain on that specific day, but still down substantially from its peak), Arm shares have still posted a strong gain of nearly 58% since the start of the year. The current price sits roughly halfway between its 52-week extremes of $164.00 (high) and $46.50 (low).
In conclusion, while Arm‘s recent quarterly results demonstrated continued solid execution and growth, particularly driven by AI-related licensing, the forward-looking guidance for fiscal year 2025 appears to have tempered investor enthusiasm. The market’s reaction suggests a recalibration of expectations following a period of rapid price appreciation, with shares pulling back as investors digest the company’s projected growth path against the backdrop of high prior valuations.
Riley Evans 
Boob