Shares of Arm Holdings (ARM) plunged in after-hours trading after the chip maker reported earnings for its first quarter of Fiscal Year 2025. Earnings per share came in at $0.40, which beat analysts’ consensus estimate of $0.34 per share. Sales increased by 39.1% year-over-year, with revenue hitting $939 million. This also beat analysts’ expectations by more than $32 million. However, it was Arm’s soft guidance that spooked investors.
Looking forward, management now expects revenue and adjusted earnings per share for Q2 2025 to be in the ranges of $780 million to $830 million and $0.23 to $0.27, respectively. For reference, analysts were expecting $812.75 million in revenue along with an adjusted EPS of $0.28.
Interestingly, Arm’s guidance was already one of the concerns among bears, according to TipRanks’ Bulls Say, Bears Say Tool pictured below. Although it refers to the previous earnings report, where the company didn’t beat and raise guidance, it does highlight the market’s lofty expectations for ARM’s future growth. These high expectations seem to have been baked into the share price, as valuation was also a concern among bearish analysts. As a result of this combination of high expectations and valuation, ARM stock was vulnerable to a large drop, even with the slightest bit of disappointment.
What Is the Future of Arm Holdings?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ARM stock based on 12 Buys, three Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 137% rally in its share price over the past year, the average ARM price target of $132.39 per share implies 8.18% downside risk. However, it’s worth noting that estimates will likely change following today’s earnings report.
