Arm Holdings (ARM) and Qualcomm (QCOM) stocks dropped Thursday after their earnings outlooks signaled that AI is not yet driving a new wave of demand for consumer devices that rely on the companies’ chips.
Arm fell 3.3% Thursday, and Qualcomm slid 3.7%.
The semiconductor firms — which are, coincidentally, engaged in an ongoing legal battle — reported December quarter results above Wall Street’s expectations. But that performance was outweighed by their outlooks for the current period, as investors showed they’re not-so-patiently waiting for AI to bolster demand for smartphones and PCs and boost revenues for Arm and Qualcomm.
Arm issued in-line but slightly softer-than-expected earnings guidance for the March quarter, with the company saying it expects adjusted earnings per share of $0.48-$0.56 in its fiscal fourth quarter, versus the $0.53 expected, according to Bloomberg data.
Revenue in its current quarter is set to come in between $1.18 billion and $1.28 billion; Wall Street forecasts were for revenue to hit $1.23 billion, the midpoint of that range. Arm also lowered the top range of its revenue outlook for its fiscal year 2025 to $4.04 billion from $4.1 billion, though it raised the bottom of the range to $3.9 billion from $3.8 billion. In other words, wrote Citi analyst Christopher Danely, a “healthy beat” in the current quarter was offset by “slightly softer” guidance for the current quarter.
Arm’s softer guidance raised fears of an AI infrastructure spending slowdown. While cheaper models like DeepSeek could drive down the cost of AI models and, in turn, benefit demand for smartphones and PCs, that cost-efficiency could mean cloud providers spend less money buying AI chips for data centers. Nvidia’s (NVDA) Arm-based Grace CPUs are used in its latest servers alongside its Blackwell AI chips.
At the same time, Qualcomm’s outlook on revenue from its chips for smartphones showed growth in that segment slowing in the March period.
The company’s handset segment saw revenue in its fiscal first quarter that ended Dec. 31 grow 13% to a record $7.6 billion. CFO Akash Palkhiwala said that segment will grow 10% in the current quarter.
“On a sequential basis, the decline in QCT handset [smartphone] revenues is primarily driven by seasonality and shipments to Apple,” Palkhiwala said.
Apple (AAPL) has shifted to developing in-house chips for its smartphones rather than relying on Qualcomm.
JPMorgan analyst Samik Chatterjee said the magnitude of Qualcomm’s earnings beat for the December quarter was “not enough to overwhelm investor concerns around extraneous factors,” such as Apple’s pivot and the expiration of its deal last year with Chinese smartphone maker Huawei.
