What Happened?

Shares of smart security company Arlo (NYSE: ARLO) fell 10.8% in the afternoon session after the company reported mixed earnings. 

Arlo posted revenue of $139.5 million and adjusted earnings of $0.16 per share, surpassing Wall Street's forecasts. 

The company also guided for next quarter's earnings to be ahead of estimates. However, the positive results were not enough to impress investors. The negative reaction could be attributed to concerns over the company's cash generation, as its free cash flow margin declined to 10.7% from 12.6% in the same quarter last year. While the report was generally positive, this decline in cash profitability may have signaled to investors that underlying performance was not as strong as the headline numbers suggested.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Arlo Technologies? Access our full analysis report here.

What Is The Market Telling Us

Arlo Technologies’s shares are quite volatile and have had 19 moves greater than 5% over the last year. But moves this big are rare even for Arlo Technologies and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 3 days ago when the stock dropped 6.3% on the news that markets became increasingly wary of high valuations following a significant AI-driven rally. 

The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. .

Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.

Arlo Technologies is up 39.7% since the beginning of the year, but at $15.33 per share, it is still trading 21.1% below its 52-week high of $19.44 from October 2025. Investors who bought $1,000 worth of Arlo Technologies’s shares 5 years ago would now be looking at an investment worth $3,180.

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