Arm Holdings Plc and Qualcomm Inc. made strong gains during the regular trading session today, with their respective share prices up by more than 8%, but both stocks wavered in after-hours trading after the chipmakers posted their latest financial results.

Arm’s stock took the biggest hit, falling more than 10% after it could only offer light guidance for the current quarter and the full fiscal year. Qualcomm’s share price dipped by just over a percentage point, and it may feel more aggrieved, since it posted a solid earnings and revenue and offered a strong outlook for the current quarter.

British chip designer Arm did okay in the quarter just gone, posting earnings and revenue that came in above expectations. The company reported a profit before certain costs such as stock compensation of 40 cents per share, while its revenue jumped 39%, to $939 million. Wall Street had been looking for adjusted earnings of just 34 cents per share on lower sales of $902.7 million.

Arm’s net profit came to $223 million, more than double the $105 million profit it delivered a year earlier.

However, there was a caveat to its results, as its royalty revenue came to just $467 million, whereas analysts had been looking for $492 million. On the other hand, Arm’s revenue from licensing and other sources came to $472 million, easily beating the consensus estimate of $418 million.

What really upset investors, though, was Arm’s guidance. The company said it sees fiscal second-quarter earnings of between 23 and 27 cents per share on revenue of $780 million to $830 million. At the middle of the range, that would imply no growth. The midpoint of both forecasts is notably lower than Wall Street’s target of 27 cents per share in earnings and $804.1 million in revenue.

The company is also maintaining its full-year view of $1.45 to $1.65 per share in earnings and $3.8 billion to $4.1 billion in revenue for fiscal 2025. That may have also disappointed investors, who were hoping Arm might see some benefits from the ongoing enterprise scramble for AI chips.

Holger Mueller of Constellation Research Inc. said Arm is growing well and deserves praise for exceeding the Street’s expectations. He noted that the company’s revenue mix flipped, with royalty sales trailing those from the license and other revenue category for the first time.

“This is likely to be an indication of things to become, but it should be remembered that license revenue is volatile so the revenue mix may revert again,” he said. “Overall, Arm appears to be healthy, but investors will be concerned that it’s not able to cash in on the AI chip boom like others in the industry have done.”

Slower to realize AI revenue

In a conference call with analysts, Arm Chief Executive Rene Haas (pictured) tried to address those concerns over the company’s AI prospects. He noted that other chipmakers, such as Nvidia Corp. and Advanced Micro Devices Inc., have both seen big boosts in revenue thanks to demand for AI processors.

However, he pointed out that Arm doesn’t see the same immediate benefits because it doesn’t actually make any AI chips, but simply licenses designs for them. It collects a royalty on each chip that uses its technology, but it can take years – as long as four years for AI server chips – for the company to realize the windfall from new designs licensed by customers, Haas explained. “The way to think about all this increased licensing activity is a very good predictor of future royalty growth,” Haas said.

The CEO said some of Arm’s intellectual property is used in Nvidia’s popular H100 graphics processing unit, which is widely used to power AI workloads. It’s seeing some benefits from that, and expects to see even more from that company’s upcoming Blackwell GPUs, which are expected to go on sale later this year.

As of this quarter, Arm said it’s no longer reporting the total number of Arm-based chips that were shipped. In a letter to shareholders, Haas explained that this was previously considered a key metric because “it represented the acceptance of our products by companies who use chips in their products (e.g. our customers’ customers).”

However, the company believes that because it’s shifting its focus to higher-value, lower-volume markets such as data center servers, artificial intelligence accelerators and smartphone application processors, the total number of chips shipped is less representative of its performance. That’s because “the growth in royalty revenue is concentrated in a smaller number of chips,” Haas said.

Qualcomm crushes targets

While Arm’s stock was heading into a tailspin, Qualcomm’s held its ground a bit better, thanks to some solid numbers and a much more optimistic forecast.

The smartphone chip supplier reported fiscal third-quarter earnings before certain costs of $2.33 per share, ahead of the Street’s forecast of $2.25 per share. Revenue for the period rose 11% to $9.39 billion, comfortably beating the analyst’s target of $9.21 billion.

All told, Qualcomm delivered net income of $2.13 bullion, up from $1.8 billion in the year ago period.

What set Qualcomm apart from Arm was its guidance. The company said it’s looking for fourth-quarter revenue of $9.5 billion to $10.3 billion, with the midpoint of that range coming in ahead of the Street’s forecast of $9.7 billion. As for earnings, Qualcomm is targeting between $2.45 and $2.65 per share, higher than the Street’s consensus estimate of $2.45 per share.

Mueller said Qualcomm also had a good quarter, with a strong performance in its automotive chip business that grew by 87% year-over-year. “Investors will be happy to see that Qualcomm become more profitable, with its net income rising by almost 20%,” he added. “Now, it’s all about repeating this performance in the third quarter, and the market will be looking to see more growth in both automotive and in AI chips, especially in PCs.”

Qualcomm CEO Cristiano Amon (pictured, adjacent) said the company remains excited about the opportunities for AI in smartphone applications. “We don’t have any heroic assumptions in our model, but we actually like the direction this is going,” he said. “It could create an interesting upside if we have an AI-driven upgrade cycle.”

Prior to today’s report, Qualcomm’s stock had risen 37% over the previous 12 months.

Photos: Arm/YouTube and Qualcomm