A screen displays the logo of Softbank's Arm, chip design firm, during the company’s initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023. REUTERS/Brendan McDermid/file Photo
(Reuters) -Arm Holdings shares fell 2% on Thursday after the chip firm's in-line quarterly revenue forecast disappointed investors looking for a bigger boost from the generative AI boom.
The British company's share price has more than doubled since its initial public offering last September, driven by bets that it will benefit from a surge in AI computing.
But unlike AI chip designers Nvidia and Advanced Micro Devices, Arm does not directly benefit from more silicon sold for use in the sprawling data centers that power AI.
It develops the blueprints that are used by other chipmakers to design central processing units. AI applications use such CPUs along with Nvidia processors, but in fewer quantities.
For Nvidia's upcoming Blackwell series, one CPU based on Arm's tech is included alongside two AI chips.
Arm forecast fiscal third-quarter revenue of $920 million to $970 million. Its midpoint is in line with analysts' estimates of $944.3 million, according to data compiled by LSEG.
The company generates revenue from licensing fees for its chip designs and collects a royalty for each chip sold that uses its technology.
Morgan Stanley expects Arm to "at least meet expectations through this year, given a broad range of drivers".
The average Wall Street rating of 36 analysts on the stock is "buy", with a median price target of $145.
Arm's stock has surged 92.5% this year, outperforming its peers. In contrast, Advanced Micro Devices is down 1.6% and Qualcomm is up 19.7%.
Arm's forward price-to-earnings ratio is 75.4, higher than AMD's 30 and Qualcomm's 14.9.
(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Tasim Zahid)
