Arm shares plunged as the British chipmaker’s first results since becoming the year’s biggest float disappointed Wall Street.
The company’s forecasts released Wednesday night fell short of investor expectations, dealing a blow to the company and its biggest backer, Softbank, which snubbed London in favor of New York in September.
Arm forecast third-quarter revenue of £620 million, missing analyst estimates of £625 million. This sent the stock down 7 percent, falling below its IPO price of $51 per share.
But shares later recovered to finish down 5 percent at $51.58.
Arm’s first update since going public was closely watched after the UK lost a tough battle to persuade the Cambridge-based company to list on the London market.
High hopes: Arm listed on New York’s Nasdaq stock exchange in September when it was valued at more than £50bn
In one of the most anticipated IPOs in recent years, Arm was valued at more than £50 billion on its debut.
Ben Barringer, technology analyst at Quilter Cheviot, said: “From the outset, you would expect a company to beat expectations and raise its forecasts – that would be prudent stock management.”
“Arm is likely to bounce around the level of its IPO price, but will ultimately disappoint some who are hoping for better results in the near term,” Barringer added.
There have also been fears that Arm’s exposure to China will affect its share price.
In documents released in August, Arm revealed that it was “particularly susceptible to economic and political risks” in China, where it makes almost a quarter of its revenue.
Arm has previously noted how rising tensions between the Biden administration in the United States and Beijing have already begun to hamper his performance.
But it wasn’t all gloomy news for shareholders, as Arm struck an upbeat note with its second-quarter earnings. Sales rose 28 per cent to £656 million, beating analysts’ expectations.
Revenue was boosted by a number of companies designing new chips using its technology amid an Artificial Intelligence (AI) boom.
Arm said big names like Google, Meta and Nvidia were working on AI-compatible chips.
These technology giants signed up as investors in its IPO, along with other large clients such as Apple, Alphabet, Intel and Samsung Electronics.
But Japanese private equity giant Softbank, which bought Arm in 2016, still owns 90 percent of the shares.
Arm also expects its annual sales for the 2024 financial year to be £2.46 billion, above analyst expectations of £2.4 billion.
“We are delighted with Arm’s performance as a public company, which has demonstrated the strength of our business model,” management wrote in a letter to investors.
Russ Mould, chief investment officer at AJ Bell, said: ‘The outlook for Arm remains promising. Investors and analysts just need to have more realistic expectations about the pace of growth.’
Before Softbank bought Arm for £24bn in 2016, it was a member of the FTSE 100 index and had a secondary listing in New York.
Once regulators defeated Softbank’s proposed sale of Arm to Nvidia, Britain pushed hard for it to return to the London stock market.
But Softbank chief Masayoshi Son chose New York in a blow to the London stock market.
It raised £4bn for owner Softbank in the biggest float in New York since electric car maker Rivian listed in 2021.
£5bn hit for SoftBank
Losses: Masayoshi Son, founder of Softbank
Softbank, its backer, took another hit when it surprised investors with a £5bn quarterly loss when its investment in WeWork collapsed.
The unexpected second-quarter loss marked the fourth consecutive quarter in the red for the Japanese conglomerate.
The dismal results came amid an already disappointing week for Softbank founder Masayoshi Son after the investment giant was hit by the collapse of WeWork.
It owns about 80 percent of the office provider’s shares.
Softbank said it recorded losses of 1.3 billion pounds related to financial support for WeWork in the first half of the year.