Shares of Arm Holdings (ARM -2.23%) were falling today after the CPU architecture specialist posted solid results in its fiscal first-quarter earnings report, but only met analyst estimates. Meanwhile, its second-quarter guidance disappointed investors, and weak guidance can trigger a sell-off in a high-priced stock like Arm.
As a result, the stock was down 11.7% as of 10:54 a.m. ET.
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Good, but not good enough
Overall revenue rose 12% in the quarter to $1.05 billion, a slowdown from the previous quarter, as it lapped a large licensing agreement in the quarter a year ago. That result was slightly below the consensus at $1.06 billion.
Royalty revenue, which may be a better reflection of underlying growth, rose 25% to $585 million, benefiting from increasing sales of Arm-based products in end markets including data centers, automotive, smartphones, and IoT.
Licensing revenue, on the other hand, declined 1% to $468 million, but annualized contract value (ACV) for license revenue rose 28% to $1.53 billion, reflecting strong recent growth in licensing.
The company hiked spending on research and development, which rose from $485 million to $650 million. As a result, adjusted operating income fell from $448 million to $412 million, and adjusted earnings per share slipped from $0.40 to $0.35, which matched estimates.
CEO Rene Haas touted the company's potential in artificial intelligence (AI), saying, "Arm is powering AI workloads everywhere with unmatched performance and energy efficiency," and noted that it reported its second straight quarter of more than $1 billion in revenue.
What's next for Arm?
Investors were disappointed with the second-quarter guidance, which calls for flat sequential growth at revenue of $1.01 billion-$1.11 billion and adjusted earnings per share of $0.29-$0.37. That forecast compared to analyst estimates at $1.07 billion in revenue and EPS of $0.35.
The sell-off is understandable, given Arm's pricey valuation, but the long-term growth picture remains intact as Arm's battery-efficient technology and investments in new components like NPUs, GPUs, and compute subsystems (CSS) make it well-positioned to capitalize on the AI boom.
Still, investors should expect quarter-to-quarter results to remain volatile.
