Shares of semiconductor design company ARM Holdings Ltd (NASDAQ: ARM) plunged over 5% in pre-market trading on November 7, despite reporting better-than-expected earnings for its fiscal second quarter 2025. The stock sell-off underscores lingering investor concerns about the company's lofty valuation and ability to sustain robust growth amid cyclical headwinds in the broader chip industry outside of the AI sector.
For the quarter ended September 30, ARM reported adjusted earnings per share of $0.30, surpassing Wall Street's consensus estimate of $0.26. Revenue came in at $844 million, above analysts' expectations of $809.8 million. However, the company's revenue guidance for the current quarter fell slightly short of estimates, projecting between $920 million and $970 million, compared to the consensus forecast of $939 million.
While ARM is benefiting from tailwinds in the AI industry, where its chip designs are heavily utilized, analysts have expressed concerns about the company's ability to maintain its premium valuation, which currently stands at over 76 times estimated earnings – significantly higher than rivals like Nvidia. Some argue that ARM's growth potential may not justify such a lofty multiple, especially as the broader semiconductor industry faces cyclical headwinds outside of the AI sector, where ARM's technology is still widely used in areas such as smartphones.
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