Why Arm Holdings Stock Lost 11% in 2025

Core Viewpoint - Arm Holdings experienced a volatile year in 2025, with strong results driven by AI trends, but faced valuation concerns and fears of an AI bubble, leading to an 11% decline in stock price by year-end [1]. Group 1: Company Performance - Arm started the year positively, benefiting from the $500 billion Stargate Project involving major companies like Nvidia and Oracle [2]. - The stock saw a sharp decline in March due to a broader market retreat and the "Liberation Day" tariff announcement [2]. - Despite the fluctuations, Arm reported a 24% revenue growth for the first half of the current fiscal year, although growth can be erratic due to its licensing model [5]. Group 2: Business Model and Product Development - Arm's business model relies on licensing and royalty revenue, which results in slower growth compared to other chip manufacturers that sell chips directly [4]. - The company is expanding its product portfolio with compute subsystems (CSS), enhancing production efficiency for customers [6]. - Arm is gaining traction in cloud computing through partnerships with Microsoft, Alphabet, and Amazon [6]. Group 3: Future Outlook - For the upcoming third quarter, Arm is guiding for $1.225 billion in revenue, reflecting a 24% increase year-over-year, and adjusted earnings per share are expected to rise to $0.41 from $0.39 [9]. - While investors may seek stronger bottom-line growth, Arm's competitive advantages and investments in AI are anticipated to yield positive results in the future [9].