After Wednesday's trading hours Eastern Time, Arm, a British chip company under SoftBank, released its financial report for the fourth quarter of the 2024 fiscal year (as of March this year) and revenue forecast for the next fiscal year (as of March next year).
Although Arm's revenue and profit performance in the fourth quarter easily exceeded market expectations, its expectations for the next fiscal year did not meet investor expectations. This highlights the uncertainty of the prospects for the construction speed of artificial intelligence computing, and also raises doubts among some investors whether the market's boost to AI related stocks has exceeded its reasonable growth range.
After the report was released, Arm's stock price plummeted by nearly 9% in post market trading. Meanwhile, the stock prices of other artificial intelligence chip manufacturers also fell after Arm's report was released, with Nvidia and AMD falling by approximately 0.5% respectively.
Arm's financial report shows:
In the fourth quarter of the previous fiscal year (as of March), Arm's revenue increased by 47% to $928 million, better than analyst expectations of $875.6 million. After adjusting for factors such as stock compensation, the earnings per share for the fourth quarter were 36 cents. It also exceeded the general expectation of 30 cents per share.
Arm expects revenue to be between 875 million and 925 million US dollars in the first quarter (as of June), with a median of 900 million US dollars, which is better than the average analyst estimate of 857.5 million US dollars.
However, Arm expects revenue to be between $3.8 billion and $4.1 billion for the entire fiscal year, with a median of $3.95 billion. The market generally expects it to be $3.99 billion. Arm estimates a full year earnings per share of $1.45-1.65, with a median of $1.55 and an average analyst estimate of $1.54.
"I want to ensure that the goals we have set are those we have high confidence in achieving," said Jason Child, Chief Financial Officer of Arm, in an interview
He added that the timing of some authorized transactions by the company may be "difficult to determine", which is why the company has issued guidance scope.
Summit Insights analyst Kinghai Chan stated that although Arm's fourth quarter performance easily exceeded expectations, "its stock price decline is due to poor prospects. The market's pricing of Arm is based on its excellent outlook, not the current level of expectations."
Does the profit outlook not match the valuation?
Since its IPO in September last year, due to people betting that Arm will benefit from the surge in demand for artificial intelligence computing, the company's stock price has doubled, with a market value of approximately $110 billion.
According to LSEG's data, its stock price is expected to have a recent P/E ratio of nearly 70 times, while in contrast, Nvidia, the leading AI seller, has an expected P/E ratio of only 35 times.
Arm's revenue is closely linked to the semiconductor market: its main revenue comes from licensing fees for its semiconductor designs and patent fees for each chip that uses its technology.
The company's authorization business increased by 60% year-on-year in the fourth quarter of last year, to $414 million; The patent business increased by 37% to 514 million US dollars.
However, while the prospects for artificial intelligence remain hot, Arm's expectations for the next fiscal year have fallen short of expectations. This does not deter market concerns. Although Arm's business is closely related to chips that support artificial intelligence applications, the company's revenue and profits have not benefited much from artificial intelligence like Nvidia.