May 7 (Reuters) - Arm shares tumbled on Thursday after the company warned of smartphone market softness and challenges in securing supply for its new artificial intelligence chip to meet growing demand.
The stock fell 5% to $225.43, with the drop set to erase more than $12 billion from the company's market valuation of $252 billion.
The British chip designer's shares have more than doubled in value this year, outperforming other chip majors.
Arm has doubled down on its AI push this year with a new data center chip for so-called agentic AI — systems capable of working autonomously — after long being a provider of semiconductor designs used by the likes of Qualcomm.
While Arm had enough capacity to fulfill the first $1 billion of demand, it has yet to secure supplies to serve demand beyond that, CEO Rene Haas said in a conference call.
Arm needs access to manufacturing capacity, wafers and testing equipment for the development of its AI chip.
The company said the new product is expected to generate more than $2 billion across fiscal 2027 and fiscal 2028.
Taiwan Semiconductor Manufacturing Co, the world's leading contract chipmaker, is producing Arm's AI chip on a 3-nanometer technology that is made from two distinct pieces of silicon that operate as a single chip.
Arm predicted "slightly negative" numbers in the smartphones sector during the call. Its designs power the majority of smartphones in the world, but a shortage of memory chips has weighed on the industry, driving up prices of electronics and slowing sales.
At least 14 brokerages raised their price targets on Arm after it reported a record quarterly revenue of $1.49 billion for the fourth quarter and forecast first-quarter revenue slightly above Wall Street estimates.
A big portion of Arm's revenue comes from licensing its technology to companies such as Nvidia and Apple and collecting royalty payments on design use.
(Reporting by Twesha Dikshit and Jaspreet Singh in Bengaluru; Editing by Leroy Leo and Joyjeet Das)
