A downbeat report from ASML dragged down other AI stocks.
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ASML reported a sharp decline in revenue, and its guidance called for a continued decline in sales in the second quarter. While that news was roughly what Wall Street expected, both the first-quarter and revenue number and the guidance missed analyst estimates.
ASML expects revenue growth to improve in the second half of the year and accelerate in 2025, but the update shows that demand from chip manufacturers like TSMC may not be as strong as expected. That, in turn, could be a warning sign for Arm as the stock soared in February after it promised accelerating revenue growth due to AI-related demand.
What’s next for Arm
High expectations are built into Arm stock, which is trading at a forward price-to-earnings (P/E) ratio above 100 and isn’t putting up the kind of eye-popping revenue growth as its collaborator Nvidia. Still, the company figures to have a bright future in AI as its CPU architecture is favored by companies like Nvidia, in part because it requires less power than alternatives.
We’ll get an update from Arm next month when its fiscal fourth-quarter earnings report comes out. Until then, expect continued volatility from the stock as investors weigh its valuation with the future growth in AI.
