Arm Holdings (NASDAQ: ARM) shares experienced a disheartening downturn following reports of lackluster initial sales figures of Apple’s (NASDAQ: AAPL) iPhone 16. This new smartphone, equipped with Apple Intelligence – its latest artificial intelligence (AI) platform, triggered concerns given that Arm garners almost half of its royalty revenue from the sale of iPhones.
The market reacted swiftly, with Arm’s stock closing 4.9% lower while Apple saw a 2.9% dip in its share price.
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Mixed Reception for iPhone 16
Initial reports suggest that the iPhone 16’s sales performance has been lackluster compared to its predecessor. Analysts, including Barclays and Ming-chi Kuo of TF International Securities, have noted a decline in demand for the new device. Signs of weaker interest, such as a reported 3 million unit reduction in chip component orders, have fueled concerns about the iPhone’s market reception.
Given Arm’s close ties with Apple, the market was quick to respond to these developments. Arm supplies CPU architecture to Apple, emphasizing power efficiency in its designs. Thus, any turbulence in Apple’s performance tends to impact Arm’s market valuation.
Rational Reaction for Investors
While Arm’s stock reacted to Apple’s recent challenges, investors should not hastily alter their strategies. Earlier announcements from Apple regarding its adoption of Arm’s v9 architecture, with higher royalty rates compared to the v8 architecture, provide a hopeful outlook for Arm’s future revenue streams.
Although a dip in iPhone sales could create obstacles for Arm, the utilization of the v9 architecture by Apple signifies potential revenue uplifts. Hence, the current setbacks from Apple do not warrant a drastic shift in how investors perceive this chip stock.
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