On Thursday, Arm Holdings (ARM) shares fell nearly 8% following its earnings report, trading at $219.85. Although the company’s performance for the fourth fiscal quarter of fiscal year 2026 (ended March) exceeded market expectations, investors showed notable concerns over its smartphone business prospects and supply chain issues related to its in-house chip development.
According to the earnings report, Arm’s quarterly revenue grew 20% year-over-year to $1.49 billion, surpassing the expected $1.47 billion. Net profit reached $641 million, with adjusted earnings per share of 60 cents, also beating market expectations. For the next quarter, the company expects first-fiscal-quarter revenue of approximately $1.26 billion, slightly above the analyst consensus of $1.25 billion. Adjusted EPS is projected at 40 cents, compared to the market’s general expectation of 36 cents. However, company executives revealed during the analyst conference call that they have not yet secured sufficient supply chain capacity to meet demand for a new chip. Additionally, analysts posed in-depth questions regarding the costs of the company’s in-house chip business, triggering market volatility.
As one of the world’s most important CPU architecture suppliers, Arm has long relied on licensing revenue from the smartphone market. Recent memory shortages affecting the mobile phone supply chain have led investors to worry that growth in its core business may slow. Nevertheless, the company has shown strong performance in the data center CPU segment, with new-generation products gaining traction among large enterprise customers. Morgan Stanley analyst Lee Simpson noted that the CPU offers significant power-efficiency advantages and is well-positioned for broader adoption in agentic AI workloads. However, he also cautioned that TSMC’s advanced process wafer supply remains a key near-term bottleneck for Arm, impacting market confidence in the company’s over $2 billion CPU market opportunity over the next two years.
Morgan Stanley (MS) stated that Arm’s core IP licensing business is currently sustaining an annual growth rate of approximately 20%, benefiting from cloud AI royalty revenue, adoption of custom CPUs by major cloud service providers, and increasing penetration of DPUs and smart NICs. The firm raised its price target from $191 to $202. RBC Capital Markets (RBC) analyst Srini Pajjuri was even more optimistic, raising his target from $175 to $260, arguing that as supply chain conditions improve, Arm is poised to become one of the biggest beneficiaries of agentic AI-driven CPU demand growth. Arm CEO Rene Haas stated that agentic AI is placing higher demands on CPU computing power and predicted that by the end of this decade, the company will capture the largest share of the CPU market.
