Shares of Arm Holdings (NASDAQ: ARM) recently experienced a downturn in response to disappointing early sales data from Apple‘s (NASDAQ: AAPL) latest release, the iPhone 16. This new smartphone boasts Apple Intelligence, its fresh artificial intelligence (AI) platform. Since Arm garners around half of its royalty revenue from iPhone sales, the negative news understandably impacted its stock performance.
Following this news, Arm Holdings’ stock concluded the day with a 4.9% decline, while Apple shares also saw a 2.9% decrease.
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Initial Performance of iPhone 16
Reportedly, the new iPhone is encountering a slow start, with analysts observing a decline in sales compared to the previous year during the first few weeks post-launch.
Barclays, in a recent note, highlighted signs of reduced demand for the iPhone 16, citing Apple’s potential 3 million unit cut in orders for a vital Taiwanese chip component. Additionally, analyst Ming-chi Kuo from TF International Securities estimated over a 12% drop in iPhone sales during the first weekend of pre-sales, with an even steeper decline in sales of the iPhone Pro.
Arm Holdings has historically been sensitive to Apple-related news, given their symbiotic business relationship. Arm licenses its CPU architecture to Apple for incorporation into their iPhones, leveraging Arm’s renowned power-efficient designs.
Reasons for Investor Caution
Despite the recent negative developments, Arm shares saw an initial boost when Apple announced their adoption of Arm’s v9 architecture a few weeks ago. This architecture commands a royalty rate roughly double that of the previous v8 generation, potentially offsetting any downside from a decline in iPhone sales.
While a drop in iPhone sales could pose challenges for Arm Holdings, Apple’s adoption of the v9 architecture may mitigate these effects. Consequently, the current hurdles faced by Apple may not warrant significant alterations in the investment approach for Arm’s chip stock.
Investment Outlook for Arm Holdings
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.