Arm's Stock Drop May Be Misguided Amid Broader AI Sector Selloff
On September 14, Arm Holdings (ARM) experienced a nearly 10% stock decline amid an industry-wide selloff in the chip sector. The drop was triggered by concerns over slowing AI development following statements from leaders at Anthropic, SpaceX, and OpenAI warning about uncontrolled technological advancement. However, analysts argue that this reaction may be misplaced for Arm, as its primary revenue still comes from smartphone-related royalties rather than direct AI sales. Arm licenses chip designs to semiconductor companies and earns a significant portion of its income—about 43% in fiscal 2026—from mobile processors used in smartphones. Its own AI products are not yet major contributors to earnings, with meaningful revenue expected only by fiscal 2028. The company had previously revised down royalty expectations due to weak smartphone demand and higher memory prices—not because of any slowdown in the AI market. Despite a sharp selloff, Arm remains well-positioned financially, holding $3.89 billion in cash against minimal debt. Analysts expect strong earnings growth over the next two fiscal years, but its high valuation leaves little room for error.
