Why Arm Holdings Stock Lost 29% Last Month
Key Points
Rising interest rates triggered doubts about the AI build-out.
Pressure on CoreWeave spread to related stocks like Arm.
Investors will be looking for hints about the new CPU when Arm reports earnings on Wednesday.
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During a weak month for semiconductor stocks, Arm Holdings (NASDAQ:ARM) was one of several losers in the sector.
While there was no major company-specific news out on Arm, the company is highly sensitive to future expectations of CPU demand due to its upcoming launch of the Arm AGI CPU, its first chip. With sentiment turning against the AI infrastructure sector, investors seem to be dialing back expectations for the potential of its new chip business, as well as the growth of its traditional IP business.
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According to data from S&P Global Market Intelligence, the stock lost 21% last month. As you can see from the chart below, the stock fell steadily over the course of the month, reflecting concerns in the broader chip sector.
ARM data by YCharts
Why Arm stock is back below $200
The only major piece of company-specific news out on Arm last month was the verdict in its legal dispute with Qualcomm over a charge that Arm breached its license agreement. Arm said the jury awarded Qualcomm just $1 in damages, and the stock finished the day, Oct. 13, bouncing back from a 5% sell-off.
Elsewhere, a combination of factors sent the stock spiraling. Interest rates continued to rise at the beginning of the month, with the yield on the 10-year Treasury note reaching a peak of 5.3%.
Relatedly, a post on a chart of CoreWeave's bond yield set off a panic in the neocloud stock and the broader AI infrastructure as investors panicked that higher interest rates would freeze demand and eventually lead to insolvency for companies like CoreWeave.
CoreWeave finished the month down 37%, and its descent paralleled that of Arm. While Arm doesn't have direct exposure to CoreWeave, Arm is dependent on long-term demand for AI chips, especially those built on Arm-based CPUs and its new Arm AGI CPU. The negative sentiment around CoreWeave not surprisingly spread to Arm then.
Meta Platforms was the named partner for the AGI CPU, and that stock tumbled after its earnings report as its free cash flow turned negative for the first time.
Image source: Getty Images.
What's next for Arm
We'll get an update from Arm when it reports third-quarter earnings on Wednesday. Analysts are expecting revenue growth of 21.4% to $1.38 billion, and for adjusted earnings per share to improve from $0.39 to $0.48.
However, investors will want to pay attention to any commentary on the new CPU, which is supposed to start shipping this calendar quarter. While investors shouldn't expect to get any numbers on it, even a sign that production is going according to plan and that the chip has begun shipping would be a positive.
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Jeremy Bowman has positions in Arm Holdings and CoreWeave. The Motley Fool has positions in and recommends Arm Holdings and Qualcomm. The Motley Fool has a disclosure policy.
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