Arm Shares Plummet as Statutory Profitability Falls Behind Adjusted Earnings

Arm Holdings' shares plummeted by about 8% after the chip designer released its quarterly results, which beat Wall Street expectations but highlighted a growing disconnect between adjusted profits and statutory earnings.

The company reported record revenue of $1.289 billion for its fiscal first-quarter, up 22% year over year and surpassing analyst estimates. The strong top-line performance was driven by growth across both of its major business segments: royalty revenue rose 22% to $715 million, while licensing and other revenue climbed 23% to $574 million.

However, investors focused on the sharp increase in stock-based compensation expenses, which surged 47% year over year and consumed more than one-third of quarterly revenue. This led to a widening gap between GAAP operating income, which fell 20% to $91 million, and adjusted operating income, which increased 29% to $531 million.

Despite the market's negative reaction, Arm remains optimistic about its outlook, projecting next-quarter revenue of about $1.38 billion at the midpoint, above analyst expectations. The company also disclosed more than $2 billion in demand for its AGI-focused CPU products through fiscal 2028, with manufacturing capacity secured for the first $1 billion of orders.