Arm, the stock, has outpaced Arm, the business

Two stocks that have done really well over the last year are chipmakers Nvidia and Arm Holdings. Nvidia’s stock price has climbed an impressive 221.53% since November 2023, while Arm, which went public in September 2023, is up 173% over the last year.

However, while the stocks have shown similar gains, the underlying businesses themselves have not. Arm just released its Q2 2025 earnings report, and the company reported lackluster 5% year-over-year revenue growth, compared to the 122% growth reported by Nvidia back in August. Below, you can see Arm and Nvidia’s respective quarterly revenue and income numbers over the last 10 quarters:

While Nvidia’s revenue and net income have jumped by 122% and 168% over the last year, Arm’s revenue is only up 5%, and its income actually declined by 16% during that time. If we expand our timeline to go back 10 quarters, Arm’s revenue and income have only jumped by a total of 22% and 34%, while Nvidia’s revenue is up 262% and its income has jumped by an astounding 926%.

And yet, despite the divergence in business performance, both of their stock prices have more than doubled this year. Why? Because they’re both “AI stocks.” As we’ve seen from recent earnings reports, Big Tech companies like Microsoft, Meta, and Alphabet are committed to investing billions of dollars in AI infrastructure. Microsoft, specifically, noted that it had spent $20 billion in the last quarter alone to support its cloud-computing and AI needs, and much of that capital went to building data centers and buying chips.

Arm’s management said the company has benefited from this uptick in AI spend. In the opening statements of Arm’s Q2 shareholder letter, CEO Rene Haas and CFO Jason Child mentioned “AI” 17 times, discussing how increased AI demand has led to current customers needing more energy-efficient chips for their devices, leading to more demand for Arm’s chips. 

However, unlike Nvidia, Arm hasn’t seen a notable sales uptick from this AI demand. One reason is that Arm doesn’t service AI capex needs directly. While Nvidia sells the GPUs that tech companies need to build and train AI models, making them a direct beneficiary of increased Big Tech investment, Arm licenses its chip designs to companies for devices like smartphones (where its CPUs power 99% of the premium-smartphone market), tablets, and laptops such as Apple’s Macbook.

So far, unlike with Nvidia, investments in AI infrastructure haven’t translated to top-line growth for Arm, but they have translated to stock-price growth. Back in May, I discussed how Dell’s stock price had increased as much as Nvidia’s despite its revenue and net income remaining virtually unchanged for similar reasons: investors treated Dell as an AI company. (Dell’s stock fell 40% over the ensuing three months, before climbing back to its May 2024 level). Today, we are seeing something similar with Arm: it looks like an AI company, and it sounds like an AI company, but “AI” hasn’t translated to revenue or profits.

Don’t tell that to SoftBank’s Masayoshi Son, though. After acquiring Arm for $32 billion in 2016 and having a $40 billion sale to Nvidia blocked in 2022, SoftBank took the company public at $51 per share. Arm is now trading at $150 a share, worth $158 billion, and SoftBank still owns 90% of the stock, giving Masayoshi Son ~140 billion reasons for wanting the stock price to stay up.