Shares of Arm Holdings plunged 6.3% to $259.45 on Thursday, extending a punishing slide that has erased roughly $70 off the stock in five trading sessions. The sell-off traces back to a single, stubborn problem: investors are worried about whether Arm can deliver enough of its new data-center processor — built for AI workloads — to satisfy existing orders, after CEO Rene Haas disclosed the company has secured manufacturing capacity to cover only the first $1 billion of demand but not the second billion.
A Record Quarter Couldn't Outrun a Supply Gap
Arm posted record revenue for its fiscal year ended March 2026, with fourth-quarter profit jumping to $313 million from $210 million a year earlier. Yet none of it mattered. The unsecured second billion in orders is exactly what sent the stock down 5.5% the day after the May earnings print, despite the beat.
Supply constraints across memory, wafer production, and packaging limit near-term fulfillment capacity. Until Arm locks in that manufacturing, Wall Street is discounting the revenue it cannot yet ship.
The Valuation Leaves Zero Room for Doubt
Arm's market cap sits around $330 billion against fiscal 2026 revenue of $4.92 billion — roughly 67 times trailing sales after the pullback.
The stock trades at about 480 times earnings , a level that punishes any hint of execution risk. HSBC recently downgraded Arm to Hold, arguing the stock has run well ahead of fundamentals.
Big Customers Are Betting on Arm — But Rivals Are Circling
Google now uses Arm-based processors in its latest AI systems, AWS is expanding its own Arm chips alongside AI accelerators, Microsoft is advancing Arm-based server chips, and data-center royalty revenue more than doubled year over year. That traction is real. But competitive pressure from the open-source RISC-V chip architecture — a free alternative to Arm's paid designs — is intensifying , giving cost-conscious customers a reason to diversify.
Smartphones Add Another Weight
Arm's designs power virtually every smartphone sold globally, but memory chip shortages are driving up device prices and slowing sales. CEO Haas called smartphone unit growth "slightly negative." That darkens the picture for Arm's largest existing revenue source just as its AI business faces its own bottleneck.
The July 29 earnings report is the next real test. Analysts expect revenue of $1.27 billion, up from $1.05 billion a year ago. Investors will be listening for one thing above all: whether Arm has finally secured the factory capacity to turn $2 billion of AI demand into actual dollars.