Shares of Arm positions (NASDAQ:ARM) took it on the chin today after a disappointing earnings report from ASML Holdings (NASDAQ: ASML) led to a broad sell-off in artificial intelligence (AI) stocks. Arm was the worst performer of the group as its shares ended the day down 12%, which was even worse than ASML’s 7.1% decline.
Arms are shocked
Artificial intelligence stocks have soared in recent months, and Arm has been among the winners. The chip designer, known for its highly efficient CPU architecture, has seen revenue growth accelerate with its breakout technology.
However, ASML’s update this morning threw cold water on the sector and led to a broad sell-off in AI shares. As one of the most expensive in the sector, Arm was hit hard by the news.
ASML reported a sharp decline in sales and its expectations anticipated a continued decline in sales in the second quarter. While that news was roughly what Wall Street expected, both the first quarter, revenue figures and expectations missed analysts’ estimates.
ASML expects revenue growth to improve in the second half of the year and accelerate in 2025, but the update shows that demand from chip manufacturers such as TSMC may not be as strong as expected. That, in turn, could be a warning sign for Arm, as its stock soared in February after promising accelerating revenue growth due to AI-related demand.
What next for Arm
There are high expectations built into Arm stock, which trades at a price-to-earnings (P/E) ratio above 100 and isn’t posting the kind of eye-popping sales growth as its partner. Nvidia. Still, the company expects a bright future in AI, as its CPU architecture is favored by companies like Nvidia, in part because it requires less power than alternatives.
We’ll get an update from Arm next month when its fiscal fourth quarter earnings report comes out. Until then, expect continued volatility from the stock as investors weigh its valuation against AI’s future growth.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends ASML, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Why Arm Holdings Stock Plunged Today was originally published by The Motley Fool
