Investors witnessed a somber day as shares of Arm Holdings (NASDAQ: ARM) nosedived on the back of discouraging early sales figures related to Apple’s (NASDAQ: AAPL) latest product, the iPhone 16. This new smartphone from Apple is set to incorporate Apple Intelligence, a fresh artificial intelligence (AI) platform, resulting in lackluster performance in sales.
Arm stands to lose a significant portion of its royalty revenue from the iPhone sales, causing a sharp decline of 4.9% in its stock price, while Apple also experienced a 2.9% drop.
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Challenges Faced by iPhone 16 Sales
Industry analysts revealed a dismal start for the iPhone 16, citing a decline in sales compared to the previous year after the initial weeks of its release. Barclay’s report highlighted weaker demand signals for the new smartphone, indicating a potential 3 million unit reduction in orders for a crucial Taiwanese chip component. Ming-chi Kuo from TF International Securities estimated a sales drop of over 12% during the first weekend of pre-sales, with even steeper declines for the iPhone Pro. This news inevitably shook Arm shares, given its close partnership with Apple, as Arm’s CPU architecture is renowned for its energy efficiency and is licensed for use in iPhones.
Cautious Optimism Amidst the Turbulence
Despite the challenges faced by Arm due to the potential decline in iPhone sales, there is a glimmer of hope stemming from Apple’s adoption of Arm’s v9 architecture. This new architecture commands a double royalty rate compared to its predecessor, the v8. While the drop in iPhone sales poses some headwinds for Arm, the utilization of v9 by Apple is anticipated to offset these challenges. Therefore, these current setbacks do not appear detrimental enough to warrant a complete shift in strategy for Arm investors within the chip stock.
Reflections on Investment Strategies
Prior to investing in Arm Holdings, it’s crucial to weigh the insights from the Motley Fool Stock Advisor analyst team. They recently unveiled their top 10 stock picks for potential high returns, with Arm Holdings not making the cut. This serves as a reminder of Nvidia’s remarkable inclusion on the list back in April 2005, having transformed a $1,000 investment into an impressive $744,197*. The Stock Advisor service has surpassed the S&P 500’s returns significantly since 2002.
*Stock Advisor returns as of September 30, 2024
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.
