Why Arm Holdings Stock Plummeted by Nearly 10% Today
Key Points
Chip companies took significant hits on Intel's latest guidance.
The bellwether company's forecast portends a challenging environment ahead.
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If Friday's stock trading session goes down in history, it will be due to the heavy sell-off of semiconductor stocks. One company caught in the downpour was U.K.-based Arm Holdings, which fell by almost 10% on that gloomy day for its industry.
The big rout
The chip stock rout can be traced to one major factor -- Intel's (NASDAQ:INTC) third-quarter earnings release, published just after market close on Thursday. It wasn't that this was chock-full of bad news, as the company reported double-digit revenue growth and substantial gains in its data center and artificial intelligence (AI) reporting unit.
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Rather, it was the unexpectedly weak guidance it proffered for its current (fourth) quarter. Not only is the bellwether semiconductor company predicting sequential and substantial declines in revenue, gross margin, and non-GAAP (adjusted) earnings per share, but its projections came in well under analyst estimates.
The following day, investor panic was palpable, with a wide range of chip stocks taking heavy losses, including Arm. Although Intel isn't quite the leading benchmark in the semiconductor industry it once was, such weak guidance is being seen as a canary in the coal mine for the sector.
Sinking as a group
When developments like this happen, markets tend to overreact by overselling. I feel that's the case for most of the chip stocks suffering collateral damage from Intel's guidance.
That said, like Intel, Arm is vulnerable to the current contraction in PC shipments, not to mention rising component costs. The factors impacting the chip giant will also affect Arm.
I've always found the company's asset-light business model appealing -- it licenses its advanced chip technology and isn't a manufacturer, so it might be less exposed than Intel. But I'd hold off on snapping up its beaten-down shares until we get the company's update in the form of its fiscal second-quarter 2027 results, slated for publication next Wednesday, Nov. 4, after market close.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arm Holdings and Intel. The Motley Fool has a disclosure policy.
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