To The Moon

$ARM Holdings Ltd (ARM)$ shares pulled back nearly 10% in late trading on Wednesday even as the British chip design firm offered up fiscal fourth-quarter results and guidance that topped expectations. Last September, its IPO'd in what could be considered the most hyped IPO in recent years.

Q4 Earnings Review

• Revenue increased by 47% YoY to $928 million, with license revenue surging 60% to $414 million and royalty revenue growing 37% to $514 million. Chips shipped total of 7 billion.

• Adjusted EPS $0.36, beating the consensus estimate of $0.30 per share.

Guidance for FY2025 Q1, Adjusted EPS between $0.32 and $0.36, revenue projected between $875 million and $925 million, slightly below consensus.

Guidance for FY2025 full fiscal year, Adjusted earnings between $1.45 and $1.65 per share, with revenue projected between $3.8 billion and $4.1 billion, lower than the analysts' expectations. lower than the analysts' expectations

Investment Highlights

• CEO Rene Haas said the strong fourth quarter results were driven by accelerated adoption of the Armv9 architecture and increased chip volume in the smartphone and infrastructure markets.

• Arm is advancing its computing subsystems strategy, combining IP blocks into complete solutions to help customers reduce time-to-market and deliver high-performance solutions.

• Royalty licensing business grew 37.4% year-on-year, mainly due to the increase in average price

• The number of the company's license customers continued to rise, boosted by increased demand for AI. Although the number of ARM licensed chips declined due to the impact of the semiconductor cycle, the single chip license fee improved by 53.1% year-on-year.

• R&D expenses crowded out part of the profit, and operating profit declined sequentially, showing an increase in revenue but not in profit.

• With the risk of a downturn in next quarter's guidance and mediocre guidance for the full year, but set a revenue growth target of at least 20% for fiscal years 2026 and 2027.

• Company's weak guidance will make it difficult to support the current valuation of nearly 100 times PE.

Moreover, it could be a bad signal for other AI chip companies' guidance estimates, such as $NVIDIA Corp(NVDA)$ next week, as investors' estimates increase, it would be more volatile for those share prices.