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What happened: Arm Holdings (ARM) stock fell 7% on Thursday.
What’s behind the move: The stock initially jumped after the chip designer’s quarterly earnings beat, but then it fell as investors digested a warning about the smartphone market.
Management noted that the mobile unit growth market flipped to negative last quarter, citing a shortage of memory chips and rising component costs as a drag on the low-end smartphone segment.
Arm’s fourth quarter royalty revenue fell short at $671 million versus estimates for $693.3 million. Demand for lower-end cellphones was weaker than expected, driven by higher memory costs.
Despite the phone slowdown, Arm upgraded its outlook for artificial intelligence data centers as demand soars for central processing units, or CPUs needed for agentic AI.
“Arm’s market share of CPU compute now represents about 50% share among top hyperscalers, demonstrating that Arm is at scale in the data center,” CEO Rene Haas said during the earnings call.
What else you need to know: Memory has been a bottleneck cited by numerous tech firms this quarter.
Even though Arm said it has $2 billion in customer demand for its new homegrown data center CPUs over the next two years, Haas clarified that the company’s supply capacity is currently only locked in for the first half of that, in large part due to the memory chip shortage.
Haas noted the team is “working really hard with the supply chain to fulfill that demand.”
Arm stock had more than doubled in 2026 leading up to this report, so the drop on Thursday may also reflect a “sell the news” position from investors who were looking for a flawless forecast.
Ines Ferre is a Senior Business Reporter for Yahoo Finance covering the US stock market, publicly traded companies, and commodities.
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