Arm’s Five-Day Decline: The Stock Price Dilemma of AI Chip Giants

On one hand, there is a stunning financial report showing a 34% surge in revenue, while on the other hand, the stock price has plummeted over 10% in five days. This “split market” situation has left investors bewildered: on November 7, the stock price fell another 3.71%, hitting a new low for the month, just a day after it had gained 4% due to better-than-expected earnings. Behind this stark contrast lies the question of whether it is a squeeze of the AI valuation bubble or market panic triggered by SoftBank’s “big moves”.

1. Hidden Gold in Financial Reports: Where Does the 34% Growth Come From?

Arm’s financial data is enough to make most chip companies envious.

In the second quarter of fiscal year 2026, the company’s revenue soared to $1.14 billion, not only representing a year-on-year increase of 34% but also exceeding analysts’ expectations of $1.06 billion, achieving the remarkable feat of three consecutive quarters with revenue exceeding $1 billion. More importantly, the revenue structure is driven by two engines: royalty income of $620 million, up 21% year-on-year, which serves as a “barometer” for chip shipment volumes; and licensing and other income of $515 million, skyrocketing by 56%, confirming the strong demand from enterprise customers for its IP.

This impressive performance can be attributed to the “tailwind” of AI computing power. The surge in demand for data center chip design has made Arm’s high-end architecture highly sought after, with Samsung even announcing the application of its CSS technology in Exynos chipsets, and now all four major Android phone manufacturers globally have adopted this technology. CEO Rene Haas candidly stated, “Arm is becoming the core computing platform of the AI era,” and this is not just empty talk—AI-related revenue alone has increased by over 50% year-on-year, far exceeding the overall growth rate.

The market initially responded positively: after the earnings report was released, the stock price surged by 4%. However, this joy lasted only a few hours, as investors began to sell off, opting for “profit-taking” in the face of a collective pullback in AI stocks.

2. Triple Blow: The Truth Behind the Continuous Stock Price Decline

A shiny financial report cannot support the stock price, primarily due to the “triple negative” that hit too hard.

First and foremost is the collective cooling of AI valuations. As a concept stock held by Nvidia, Arm’s stock price had already been pushed to “high altitudes” by the AI boom. However, as the market began to worry about a slowdown in AI chip demand, the Nvidia concept sector took the lead in plummeting, and Arm naturally could not escape the fate of being “dragged down.” It’s like a passenger in a car; when the driver hits the brakes, the unbuckled passengers in the back are the first to be jolted.

Next came the short-term impact of profit-taking. From the release of the earnings report to the stock price surge, short-term funds had already made enough profit, and the 4% increase became a “profit-taking window.” This kind of “take the profit while it’s good” operation is particularly common in volatile markets—after all, compared to the elusive long-term value, the tangible cash in hand is more practical.

The most fatal blow came from SoftBank’s “chain reaction”. On November 7, SoftBank’s stock price plummeted by 7% in a single day, with nearly $51 billion in market value evaporating in a week. As Arm’s “big boss,” SoftBank’s financial situation directly affects market nerves. More subtly, SoftBank had just announced a $5.4 billion acquisition of ABB’s robotics business, and news emerged that it had previously attempted to acquire Mellanox Technologies but failed. This aggressive “buy, buy, buy” approach has raised concerns among investors about whether it would affect Arm’s “cheese.”

3. Strategic Breakthrough: From “Selling Blueprints” to “Making Chips”

Behind the stock price fluctuations is Arm’s “perilous leap”.

For a long time, Arm has relied on selling IP licenses to “earn money while lying down”—like drawing architectural blueprints without ever building houses. But now it wants to personally enter the chip-making arena, transitioning from “teaching fishing” to “fishing itself,” which directly boosts royalty income and solidifies its position in the data center market. It is important to note that self-developed chips allow Arm to gain more technical discourse power, no longer passively relying on customers’ design choices.

SoftBank’s “acquisition ambitions” have further fueled this fire. Although the negotiations to acquire Mellanox Technologies have collapsed, the market generally speculates that SoftBank wants to integrate Arm with hardware manufacturers to create a “giant” in the AI chip field. While this vision is appealing, it also raises concerns: can Mellanox’s business smoothly integrate with Arm? Will it repeat the failures of previous acquisition integrations? Uncertainty has become another burden on the stock price.

However, the risks of transformation are also hidden within. Arm’s royalty income still relies on the smartphone market for over 60%, which is already saturated. If demand for smartphone chips further declines, relying solely on AI business growth may not fill the gap. Not to mention that developing self-made chips requires significant investment in building teams and conducting research and development, making it difficult to see returns in the short term, which is not good news for investors seeking short-term gains.

4. Long-Term Game: Should We Panic or Buy the Dip?

For investors, the value judgment of Arm essentially balances “short-term fluctuations” and “long-term tracks”.

First, let’s look at the risks: SoftBank’s financial pressure cannot be ignored; the $5.4 billion acquisition of ABB’s robotics business requires substantial funds, and there is a possibility that it will reduce its holdings in Arm to cash out; the squeeze on AI valuations is still ongoing, and if subsequent earnings growth does not meet expectations, the stock price may need to test new lows; the path of transforming into self-made chips also faces direct competition from giants like Intel and Nvidia, which is no easy task.

But opportunities are equally clear. The global AI chip market is still growing rapidly, and Arm’s low-power architecture has inherent advantages in edge computing and autonomous driving; automotive chips, IoT, and other non-smartphone businesses are expanding rapidly, effectively hedging the risks of a single market; the upgrade from “IP licensing” to “full-stack solutions” could open up new growth spaces if successful, fundamentally changing the valuation logic.

Morgan Stanley analysts’ views may be quite insightful: “Arm’s core risk lies in the momentum of its licensing business and royalty growth, but the incremental market brought by AI is sufficient to cover short-term pressures.” In simple terms, this is like buying growth stocks; one cannot only look at the current K-line fluctuations but must focus on whether the track is long enough and whether the company is fast enough.

Arm’s stock price fluctuations are actually a microcosm of the entire semiconductor industry: at the crossroads of technological change and market cycles, short-term noise will always overshadow long-term value. Whether it is SoftBank’s “big moves” or the “roller coaster” of AI valuations, they are ultimately just interludes in the process. For true investors, rather than getting caught up in the ups and downs of these few days, it is better to focus on its technological iteration—after all, in the chip industry, “architectural dominance is the eternal moat,” and Arm’s card has not yet expired.