Why Arm Holdings Stock Lost 5% on Tuesday
Shares of Arm Holdings (NASDAQ: ARM) were heading lower on reports of disappointing early sales results from Apple's (NASDAQ: AAPL) iPhone 16, the new smartphone it just released that will include Apple Intelligence, its new artificial intelligence (AI) platform.
Arm makes roughly half of its royalty revenue from the iPhone, so it wasn't surprising to see the stock reacting poorly to the news.
Arm stock closed down 4.9%, while Apple lost 2.9%.
iPhone 16 is off to a weak start
According to multiple analysts, sales of the new iPhone are down year over year after its first weeks on the market.
In a note this morning, Barclays said it's seeing signs of weaker demand for the new smartphone, including that Apple may have cut orders by 3 million units for a key Taiwanese chip component.
Another analyst, Ming-chi Kuo of TF International Securities, estimated that iPhone sales were down more than 12% in the first weekend of pre-sales, with an even sharper slide in sales of the iPhone Pro.
Arm stock has reacted in the past to news about Apple, as the two are close partners, so it's not a surprise to see the stock falling on this news. Arm licenses its CPU architecture for Apple to use in its iPhones, as its designs are known for being power-efficient.
Why investors shouldn't overreact to the news
Arm shares jumped when Apple said a few weeks ago that it was using Arm's v9 architecture, which carries a royalty rate that's approximately double that of the v8, the previous generation of Arm's CPU architecture.
While a decline in iPhone sales would be a headwind for Arm, Apple using the v9 should more than make up for it. Given that, Apple's challenges don't seem serious for Arm investors to change their approach to the chip stock.
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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.
Why Arm Holdings Stock Lost 5% on Tuesday was originally published by The Motley Fool