Retail investors hoping to make big gains from investing in Arm (ARM:NASDAQ) have stomached the first setback from the company since its return to the stock market two months ago.

The UK chip architecture designer Arm, which listed ADRs (American Depository Receipts) on US exchange Nasdaq at $51 in September amid heavy fanfare, was red-faced after having to reel back expectations for the three months to 31 December. Arm blamed large licensing deals that may happen later than previously thought.

Arm now sees third quarter earnings per share in the range of $0.21 to $0.28, compared to the previous consensus of $0.27, while the company expects revenue in the range of $720 million to $800 million.

There is relief for investors with the $53 billion company still roughly on track to match forecasts for the full year to 31 March 2024, with earnings per share seen in the range of $1.00 to $1.10, compared to the consensus estimate of $1.04, and revenue of $2.96 billion to $3.08 billion, compared to the consensus of $2.96 billion.

Arm used to be a UK-listed stock but delisted when Japan’s Softbank acquired the company in 2016. It returned to the market this year, opting for a US listing. Having surged 25% to $63.59 on their first day of trading in the US, the shares have since drifted back to the IPO price.

Despite beating expectations for its second quarter, which included quarterly revenue topping $800 million for the first time, Arm and the wider chip industry have faced significant headwinds this year.

Just days after Arm’s IPO, Reuters reported Taiwan’s TSMC (2330:TPE), the world’s largest contract chipmaker, had asked its suppliers to delay deliveries amid concerns over slowing demand. This followed a growth warning from TSMC in July, where chief executive CC Wei warned that a boom in artificial intelligence development was unlikely to offset a broader, cyclical slowdown in the industry.

‘Straight out of the IPO gates you would expect a company to beat expectations and raise guidance – that would be prudent stock management,’ said Ben Barringer, an analyst at wealth manager Quilter Cheviot. ‘Arm has failed in doing that and there are risks for the company in China, as was highlighted ahead of the IPO.’

Despite the setbacks, the second quarter results still included evidence of strong operational execution, which bolstered margins. There are also multiple growth opportunities ahead, such as benefiting from industry investment in data centres, automotive electronics expansion and artificial intelligence, the theme that had dominated technology talk all year. 

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