Why is ARM down? Arm Holdings stock plunges on earnings report, despite AI chip boom

Just a day after chip giants Nvidia and TSMC saw their stock prices rise, opposite fortunes are affecting competitor Arm Holdings. Yesterday after the close of the markets, Arm reported its first quarter results for fiscal year 2025, and in pre-market trading this morning, its shares (ticker: ARM) have plunged. As of the time of this writing, the stock is currently down over 8%.

Here’s what you need to know about Arm’s results and why its share price is down so much in pre-market this morning.

Q1 2025 results

Arm Holdings actually had a pretty good first quarter to their new fiscal year. The company posted $939 million in total revenue for the quarter, an increase of 39% year-over-year. License and other revenue accounted for $472 million of that $939 million, a growth of 72% year-over-year. Royalty revenue accounted for the other $467 million, up 17% year-over-year.

The company also posted an earnings per share of 40 cents.

In a shareholder letter accompanying the earnings report, CEO Rene Haas and CFO Jason Child wrote, “In Q1, we delivered record revenues and exceeded the high-end of our guidance range for both revenue and non-GAAP EPS. License revenue hit a record level as the proliferation of AI everywhere is driving more companies to make broad and long-term commitments to use Arm’s power-efficient technology in their future products.”

If Arm had good Q1 results, why is the stock price down?

A total revenue increase of 39% year-over-year is nothing to sneeze at, so why is Arm’s share price down in pre-market trading?

It comes down to the fact that most investors seem to have been disappointed with what Arm says comes next. That is, investors did not like that the company’s earning guidance for the current quarter (Q2 2025) and greater fiscal year remained relatively unchanged, instead of being revised upward based on Q1’s total earnings surge and the boom in the chip market in general thanks to the AI wave sweeping the industry.

Arm is forecasting total revenue of between $780 million and $830 million for its current Q2, and total revenue of between $3.8 billion and $4.1 billion for its full fiscal 2025. It is also forecasting earnings per share of between $1.45 and $1.65 for fiscal 2025.

Those full fiscal 2025 guidances are unchanged since the last time Arm issued FY25 guidance upward.

How Arm makes money

Though Arm Holdings is a chip company, it’s not a chip company like Nvidia or TSMC. Arm designs computer chips and then licenses their design and technology out to other companies that make and sell the chips.

Because of this business model, Arm makes the majority of its revenue from licensing fees and royalties. However, licensing fees and royalties can take months or even years to be paid, which means the revenue Arm receives from chip deals today can be delayed well into the future.

This is a reason why Arm hasn’t yet benefitted to the degree other chip companies like Nvidia have from the AI chip boom. As Reuters notes, the licensing money Arm will receive from the chips that it is providing today to customers for use in high-end AI servers could take as long as four years to materialize in Arm’s coffers, according to CEO Rene Haas.

If that’s the case, no wonder the company hasn’t changed its previous FY25 guidance.

But despite Arm’s share price drop in pre-market this morning, the company has offered good returns for investors that got in when it went public in September of last year. Arm shares began trading around $56 per share at the IPO and have since climbed over 155%.

Before its Q1 earnings report yesterday, Arm shares closed at $144.17. In pre-market trading this morning, shares are currently sitting around $132 as of the time of this writing.

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