By Max A. Cherney and Arsheeya Bajwa

(Reuters) -Arm Holdings shares tumbled 8% in extended trading on Wednesday, after the chip tech provider issued quarterly forecasts that disappointed investors, in part because of its plans to invest a portion of its profit into building its own chips and other components.

The company forecast fiscal second-quarter profit slightly below estimates as global trade tensions threaten to hit demand for Arm in its mainstay smartphone market, failing to satisfy investors who have sent the stock surging in recent months.

The plan to invest more heavily in developing its own chips marks a departure from Arm's long-time business of supplying intellectual property to companies ranging from Nvidia to Amazon.com, which already design their own chips.

Finished chips are the "physical embodiment" of a product Arm already sells called Compute Sub Systems (CSS), Arm CEO Rene Haas said.

"We are consciously deciding to invest more heavily - (in) the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters.

Chiplets are smaller, function-specific versions of a larger chip that designers can use as building blocks to form a complete processor. Solutions integrate hardware and software.

The decision to increase its investments in potential chips, chiplets and solutions may not result in a product if Arm decides to halt development or pause various projects, the company said.

If the company opts to make a full chip, it will eat into the company's profit and is no guarantee of success. Advanced AI chips cost upwards of $500 million for the silicon alone and potentially more for the server hardware and software necessary to support it.

To build up the necessary staff to make chiplets and other finished chips, Arm has been recruiting from its customers and competing against them for deals.

Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. But he said that Arm would look at chiplets, "a physical chip, a board, a system, all of the above."

For years, the SoftBank Group-owned Arm has embarked on an ambitious campaign to expand its revenue and boost its profit through a combination of new, higher-margin products such as the CSS tech and boosting the royalties it collects on each chip. Details of discussions among Arm executives about making its own chips emerged during a trial in December.