ARM Q4 2026 Earnings Report

ARM EPS Results

• Actual EPS: $0.60
• Consensus EPS: $0.58
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.55

ARM Revenue Results

• Actual Revenue: $1.49 billion
• Expected Revenue: $1.47 billion
• Beat/Miss: Beat by +$16.71 million
• YoY Revenue Growth: +20.10%

ARM Announcement Details

• Quarter: Q4 2026
• Date: 5/6/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, May 6, 2026
• Conference Call Time: 5:00PM ET

ARM (NASDAQ:ARM) Limited (NASDAQ: ARM) is a global semiconductor IP company best known for designing energy-efficient processor architectures and related technologies that underpin a wide range of computing devices. Founded in 1990 as a joint venture between Acorn Computers, Apple and VLSI Technology and headquartered in Cambridge, England, Arm develops the ARM instruction set architectures and core processor designs that chipmakers license and integrate into custom system-on-chip (SoC) products. The company operates a licensing and royalty business model rather than manufacturing chips itself.

Arm’s product portfolio includes CPU core families (such as Cortex and Neoverse lines), GPU and multimedia IP (Mali), neural processing units (Ethos) and a suite of system and physical IP blocks. It also provides software tools, reference designs, development platforms and ecosystem support to help customers implement and optimize Arm-based designs. Arm architectures are widely used across mobile devices, embedded systems, IoT, automotive applications, networking and increasingly in servers and cloud infrastructure due to their focus on power-efficient performance.

Arm serves a global customer base of semiconductor companies and device manufacturers through offices and partner relationships around the world. The company was acquired by SoftBank Group in 2016 and subsequently returned to the public markets in 2023 via an initial public offering on the Nasdaq; SoftBank remained a significant shareholder following that offering. Arm’s executive leadership in recent years has emphasized expanding its footprint beyond mobile into data center, automotive and edge computing markets while nurturing a broad partner ecosystem that supports hardware and software innovation around Arm architectures.

ARM Q4 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Arm reported a record quarter and fiscal year with $1.49 billion in Q4 revenue and $4.92 billion for FY2026, marking a third consecutive year of >20% revenue growth and record non‑GAAP EPS.
• Positive Sentiment: Demand for the Arm AGI CPU has accelerated to over $2 billion of customer demand for FY2027–2028 and the company remains on track for a long‑term target of $15 billion by FY2031, with support from 50+ ecosystem partners and major customers.
• Negative Sentiment: Arm is keeping near‑term AGI CPU revenue guidance conservative (maintaining the prior $1 billion outlook) while it secures wafers, memory and packaging capacity, indicating supply constraints could limit initial chip revenue ramp.
• Positive Sentiment: Data‑center momentum continues: royalty revenue from cloud AI and data‑center chips has more than doubled year‑over‑year, driven by hyperscaler adoption (AWS, Google, Microsoft, NVIDIA) and strong share in networking DPUs/SmartNICs.
• Positive Sentiment: Arm is increasing R&D (non‑GAAP OpEx up ~30% YoY) but delivered a ~49% non‑GAAP operating margin

[Operator]

Thank you for standing by. Welcome to the Arm fourth quarter fiscal year 2026 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Kvaal, head of Investor Relations. Please go ahead.

[Jeff Kvaal, Head of Investor Relations at Arm]

Thank you, Sharon, and welcome everyone to our fourth quarter fiscal 2026 earnings call. On the call are Rene Haas, Arm's Chief Executive Officer, and Jason Child, Arm's Chief Financial Officer. Today's call contains forward-looking information about the company and its financial results. While these statements represent our best current judgment, our business is subjected to many risks and uncertainties that could cause actual results to differ materially. Important risk factors that may affect our business and future financial results are described in our annual report on Form 20-F filed with the SEC. Arm assumes no obligation to update any forward-looking statements. We will also refer to non-GAAP financial measures during the call.

[Jeff Kvaal, Head of Investor Relations at Arm]

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our shareholder letter, as can a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable effort and supplemental financial information. Our earnings materials are available at investors.arm.com. With that, I'll turn the call to Rene.

[Rene Haas, CEO at Arm]

Thank you, Jeff, welcome everyone. Arm delivered a record quarter and record fiscal year. Revenue this quarter was $1.49 billion, up 20%, our highest quarterly revenue quarter ever and above the midpoint of our guidance. Licensing revenue grew 29% year-over-year to $819 million, driven by strong demand for the Arm platform. Royalty revenue grew 11% to $671 million with growth across Edge AI, physical AI, and cloud AI, where our data center royalty has more than doubled year-over-year. That drove record non-GAAP EPS of $0.60, even while we continued to increase investment in R&D. For the full year, revenue reached a record $4.92 billion, up 23% year-on-year.

[Rene Haas, CEO at Arm]

Royalty revenue was up $2.61 billion, up 21%, and licensing revenue was $2.31 billion, up 25%. Non-GAAP EPS was also a record at $1.77. Fiscal 2026 was our third consecutive year since going public of more than 20% revenue growth, demonstrating the strength of our business and the increasing relevance of Arm in the highest growth areas of compute. This quarter was driven by key highlights, including the expansion of Arm's product strategy and our continued momentum in cloud AI. As AI is moving from human-based queries to continuous agent-driven workloads, this shift is expanding the role of the CPU. These agentic workloads require CPUs to coordinate tasks, move data, manage memory, enforce security, and orchestrate work around accelerators.

[Rene Haas, CEO at Arm]

As agentic AI scales, data centers will require more than four times today's CPU capacity, creating a data center CPU market opportunity of more than $100 billion by 2030. The Arm AGI CPU, which we launched at our Arm Everywhere event last quarter and is purpose-built for agentic AI, addresses this need directly. Our first production silicon product for the data center will deliver more than two times the performance per rack compared with x86 platforms, with the potential to reduce AI data center capital expenditure by up to $10 billion per gigawatt. Meta is our lead partner and co-developer and is working with us on a multi-generation roadmap to support personal super intelligence for more than 3 billion users. The Arm AGI CPU expands how customers can work with Arm. Customers can now deploy Arm compute through IP, compute subsystems, or silicon.

[Rene Haas, CEO at Arm]

One compute platform, one software ecosystem. That is unique to Arm. IP and CSS remain the foundation of our royalty growth. Silicon extends the Arm platform and gives customers another way to build AI infrastructure. Ecosystem support has been significant. More than 50 leading companies are supporting the expansion of the Arm compute platform into silicon, including the very biggest names in the industry. Customer response to the Arm AGI CPU has been very strong. We now have more than $2 billion of customer demand across fiscal 2027 and fiscal 2028. This is more than double what we stated at launch. We are on track towards our forecast of $15 billion as this business as stated at our Arm Everywhere event. Soon, the data center will be Arm's largest business. The direction is clear. Customers want Arm at the center of the AI data center.

[Rene Haas, CEO at Arm]

Customers need Arm where agentic applications run, and they need Arm where accelerators scale. For example, SAP will move their core database and business application workloads to Arm, starting with AWS Graviton and expanding to the Arm AGI CPU. This represents a significant strategic shift. Cloudflare will deploy Arm across its global network to support traffic management, security, and AI inference closer to users. We have also secured design wins with key network infrastructure providers, including F5 and SK Telecom. AI infrastructure needs CPUs and accelerators working together efficiently at scale. NVIDIA, Amazon, and Google are already using Arm-based CPUs as head nodes along the accelerator-based systems. Cerebras, OpenAI, Rebellions, and Positron are doing the same with the Arm AGI CPU. This momentum builds on our existing scale in the cloud.

[Rene Haas, CEO at Arm]

That scale is increasingly driven by Arm Neoverse CSS and Arm-based Compute, which now represents about 50% market share with top hyperscalers. Recent announcements from key customers show that AI infrastructure is being built around Arm-based custom silicon. At Google Cloud Next, Google announced TPU 8t for training and TPU 8i for inference. In both cases, replacing x86 host processors with custom Arm Axion CPUs. The increased performance at 50% less power enables an 80% improvement over the previous x86 solution. AWS continues to scale its custom silicon strategy with Arm-based Graviton alongside Trainium and Nitro, while Microsoft is advancing its Arm-based strategy with Cobalt, designed to deliver high performance and energy-efficient compute for Azure workloads. At NVIDIA GTC, NVIDIA announced Vera, the next generation Arm-based CPU built for agentic AI and building a standalone rack integrating 256 Vera CPUs.

[Rene Haas, CEO at Arm]

Across the largest AI platforms, Arm-based CPUs are becoming central to performance, efficiency, and cloud economics. Our opportunities do not stop at the data center. AI is moving to every device and every physical system. Phones, PCs, vehicles, factories, robots, cameras, sensors, and connected devices all need efficient, secure compute with software that scales. These AI workloads will all run on Arm. With over 350 billion chips shipped and over 22 million developers, the Arm compute platform is the most comprehensive in history, and we are positioned to bring AI from cloud infrastructure to the edge and to the physical world through a common compute platform and ecosystem. We enter fiscal 2027 with record results, strong customer demand, and a larger opportunity ahead of us.

[Rene Haas, CEO at Arm]

Our strategy is clear: grow royalties through IP and CSS and add silicon as a new growth vector and scale the Arm platform across the next generation of AI workloads. With that foundation in place, our focus is execution and continuing to build the future of AI on Arm. With that, I will hand it over to Jason.

[Jason Child, CFO at Arm]

Thank you, Rene. We have delivered another record quarter. Total revenue grew 20% year-over-year to $1.49 billion, which is nearly $250 million higher than our previous records. Our strong Q4 revenue also capped a record year. Revenue growth of 23% exceeded 20% for the third straight year and lifted fiscal 2026 revenues to $4.9 billion. Our revenue strength translated into record EPS for both Q4 and fiscal 2026. Royalty revenue grew 11% year-over-year to $671 million, our highest ever figure for Q4 royalty revenue. The biggest contribution to royalty revenue growth was from cloud AI. Data center royalty revenue continues to more than double year-over-year, and we see no break in this momentum.

[Jason Child, CFO at Arm]

This is primarily driven by the accelerating ramp of Arm-based server chips by all major hyperscalers, as well as increased deployments of data center networking chips, particularly DPUs and SmartNICs, where Arm has close to 100% market share. In Edge AI, our smartphone revenues continue to deliver growth despite end market weakness. This is driven by our higher royalty rates from increasing penetration of Armv9 and compute subsystems into higher-end smartphones. Edge AI has also contributed to our strong royalty performance, driven by secular growth of ADAS and autonomous systems based on Arm technology. Turning now to licensing. License and other revenue was $819 million, up 29% year-on-year. Growth was driven by strong demand for next-generation architectures and deeper strategic engagements with key customers.

[Jason Child, CFO at Arm]

For example, we signed a long-term strategic partnership with the Indonesian government to strengthen Indonesia's capability in the development of AI technology. We also signed two next-generation CSS licenses, one to be used to develop chips for smartphones and the other for data center networking chips. These agreements reflect the continued investment by our customers in next-generation Arm technology. Of the $819 million of licensed revenue, our agreement with SoftBank for technology licensing and design services contributed $200 million, flat with the prior quarter. As always, licensing revenue varies quarter to quarter due to timing and size of high-value deals. As we continue to focus on annualized contract value or ACV as it's a key indicator of the underlying licensing trend. ACV grew 22% year-on-year, maintaining strong momentum.

[Jason Child, CFO at Arm]

This continues to be above our long-term expectations for licensed revenue growth. As Rene noted, or as Rene mentioned, customer demand for the Arm AGI CPU is very strong. We now have line of sight to more than $2 billion of demand across fiscal 2027 and 2028.

[Jason Child, CFO at Arm]

However, we are maintaining our outlook of $1 billion while we pursue supply chain capacity, and we still expect the first revenues from production shipped sales to land in the fourth quarter of this fiscal year. Turning to operating expenses and profits. Non-GAAP operating expenses were $734 million. This was about $10 million below our guidance and up 30% year-on-year due to strong R&D investment. These investments in R&D reflect ongoing engineering expansion to support customer demand for more Arm technology, including continued innovation in next-generation architectures, Compute Subsystems, and the recently announced Arm AGI CPU product family. Non-GAAP operating income was $731 million, resulting in a non-GAAP operating margin of about 49%. Non-GAAP EPS was $0.60, driven by both higher revenue and slightly lower OpEx than expected. Turning now to guidance.

[Jason Child, CFO at Arm]

For Q1, we expect revenue of $1.26 billion ±$50 million. At the midpoint, this represents revenue growth of about 20% year-on-year. We expect royalty revenue and license and other revenue to both be up around 20% year-on-year. We expect our non-GAAP operating expense to be approximately $760 million and our non-GAAP EPS to be $0.40 ±$0.04. The strength of demand we're seeing, combined with our expanding portfolio and deepening customer engagements, gives us confidence in our ability to deliver sustained long-term growth. For those of you that missed our March Arm Everywhere AGI CPU event, we expect that by FY 2031, we will be generating $15 billion in AGI CPU revenue and $10 billion in IP revenue for a total of $25 billion.

[Jason Child, CFO at Arm]

We expect this to translate to more than $9 in EPS. With that, I'll turn the call back to the operator for Q&A.

[Operator]

Thank you. We will now take our first question. The first question comes from the line of Andrew Gardiner from Citi.

[Andrew Gardiner, Analyst at Citi]

Thank you very much for taking the question. Good afternoon, all. It's only been six weeks since you held the Arm Everywhere event and announced the new Arm AGI CPU. Somehow it feels a lot longer given the rate of change in the chip industry and in particular the AI space. You can certainly see that as well in the demand you've just highlighted. You're now saying that you've got over $2 billion of demand for the next two fiscal years. I was just hoping that you could give us a bit more detail on, you know, how that additional demand has transpired over the last six weeks, or perhaps type of customer. Is some of it greater demand with the launch customers you highlighted to us in San Francisco?

[Andrew Gardiner, Analyst at Citi]

Is it, you know, all new interest, new customers, applications they've got in mind? Also, Jason, I just wanted to touch on the point you made there where you're not changing the guidance. You know, the demand has doubled, and you're now sort of seeking incremental supply from your foundry and I presume memory partners as well. You know, what do you think you'll be able to do in terms of accessing that supply? How are you going about that? Thanks very much.

[Rene Haas, CEO at Arm]

Yeah. Thank you for the question, Andrew. I'll tackle the first part in terms of where the demand is coming from, touch a little bit upon the supply situation, and then let Jason address sort of the numbers aspect to it. One of the beauties of the product that we announced at the Arm Everywhere event is the fact that the CPU can come in a number of different flavors. One of the more attractive options is actually buying finished racks from our partners such as Supermicro, Lenovo, ASRock. That enables customers to order and deploy quite quickly. Many customers that we've talked about are already using Arm, so whether that's through internal designs or running designs at the cloud.

[Rene Haas, CEO at Arm]

A lot of the software work has been completed. The work required in terms of bringing on new compute capacity that's Arm-based, there isn't a lot of friction to that. You have a situation where, A, software is done, and B, you've got availability of a rack design that you can put in the data hub pretty quickly. To your question, it's a combination of both. It's a combination of some of the customers that we talked about during the day, increasing their forecast, and there are also customers that we didn't talk about on the day, who have said, "Hey, we are very, very interested and we're ready to deploy.

[Rene Haas, CEO at Arm]

How quickly can we get units? The number that we talked about end of March was supply in place to support $1 billion of demand, and that includes memory, that includes wafers, that includes packaging, that includes access to test equipment. For the $2 billion, we are now in the process of securing supply to support that. The teams are working around the clock to make sure we can find the right answers for our customers. Relative to how that impacts guidance going forward, let me turn that to Jason.

[Jason Child, CFO at Arm]

Yeah. Thanks, Andrew. In terms of the expectation, I think we said back at the Arm Everywhere event that you should assume probably, you know, $90-ish million or so of revenue, just shy of $100 million in Q4. At this point, we're not changing that target. As we get deeper into the year, we will provide some, you know, kind of indications on how things are going with supply chain. Of course, in Q3, we'll give you a much firmer estimate of what we expect to deliver in Q4. You know, maybe some indications of what we think FY 2020 will look like as well.

[Andrew Gardiner, Analyst at Citi]

Thank you, guys. Very clear.

[Operator]

Thank you. We will now go to questions. The question comes from the line of Joe Quatrochi, Wells Fargo. Please go ahead.

[Joe Quatrochi, Analyst at Wells Fargo]

Yeah. Thanks for taking the questions. Maybe first just, you know, as we think about, I guess, like the royalty rate growth for 1Q and then just thinking about the full year, is there any help that you can provide, just kind of the puts and takes there? Clearly, data center, very strong, accelerating. How do you kinda think about, you know, consumer electronics, smartphones, et cetera?

[Jason Child, CFO at Arm]

I'll get it. Thanks for the question, Joe. In terms of, you know, Q4, as we said before the quarter, we had a bit of a tough comp, in that we had a particularly strong ramp of MediaTek's Snapdragon 400 a year ago, more so than what we expected this year. As a result, you know, you saw a bit of a slowdown in royalty revenue. As indicated by our guidance, we're expecting that to get back to the kinda 20% range, by Q1. I would say within, you know, the assumptions within our expectations are we will probably continue to see, you know, unit growth, I think, actually flip to negative for the mobile market in this last quarter.

[Jason Child, CFO at Arm]

We're gonna continue to see, you know, very flattish, maybe slightly negative numbers for the overall market. The, you know, the lower end of the market is probably gonna be where most of that impact is, it doesn't have too much impact on us. Of course, any sort of negative impact we do see, we expect that to be more than offset by demand in cloud AI or specifically in the data center. I would say on the data center, there's certainly been a lot of positive announcements from some of our partners, you know, certainly AWS and Google in particular, about, you know, kind of their deployments and either accelerating some of those deployments.

[Jason Child, CFO at Arm]

You know, now You know, you could say that the three largest GPU providers across NVIDIA with Vera, or Grace, and then, of course, with now Google, pairing TPUs with Axion, to the latest Arm-based chip, and then, of course, Trainium all paired with the latest version of Arm-based Graviton. All of those partners are now all on Arm, we're expecting that that should provide continued growth and upside throughout the year. Hard to say exactly what that pace of growth will look like since we're not gonna announce their numbers that they haven't announced, but we do expect to see continued upside.

[Jason Child, CFO at Arm]

Any of the weakness that we see, you know, in memory and mobile, we do expect that to be largely offset, plus, I would say, on the cloud side. Then outside of that, you know, the other category of automotive continues to be growing strong, and we don't see any changes there. We continue to gain share and continue to grow kind of in that double-digit growth rate. Overall, feel pretty good about the royalty outlook for the balance of the year.

[Operator]

Thank you. We will now take the next question. The next question comes from Vivek Arya for BofA Securities. Please go ahead.

[Vivek Arya, Analyst at BofA Securities]

Thanks for taking my question. Rene, yesterday when AMD spoke about the CPU market, they gave a 2030 TAM of $120 billion, you know, slightly more than the $100 billion that you had given before. They also suggested that they expect to maintain 50% share. I imagine Intel will stay relevant in that timeframe also. There are all these captive programs, right? Graviton and Axion and Vera and so forth. I'm just trying to understand what is Arm's natural kind of niche in the market? Like, which of these parties conceptually can you take share from to grow your business? Thank you.

[Rene Haas, CEO at Arm]

Thank you for the question. When we talked about a $100 billion TAM on March 24th at the Arm Everywhere day, I think we were the first company to talk about numbers in that magnitude, and we had a bunch of questions about it. Now it's sort of nice to see the rest of the market catching up and going higher than the number. Could the number be $120 billion out in that timeframe? Certainly. We are seeing, you know, literally not only an explosion of CPU demand, but one of the areas that we're seeing growth in terms of CPU is number of cores per CPU. Many of these agents want to run independent jobs or flows or a batch on a specific CPU core.

[Rene Haas, CEO at Arm]

Again, the Arm AGI CPU is 136 cores, which is much larger than many of the competitive offerings. In the go forward space, could I see a world of 256 cores, 512 cores? Absolutely. It's a great place for Arm because in a very, very high core count design, what really matters is efficiency per core, and that's where we are, we're world-class.

[Rene Haas, CEO at Arm]

You know, as far as the market share numbers, AMD has 50, Intel has 50, and we have 50, so you add up to some crazy number. All I would say is as follows. We see a very, very strong direction with all of the Arm hyperscalers who use our technology today, as Jason mentioned, whether it's NVIDIA, whether it's Amazon, whether it's Google. The very largest and most prevalent accelerators by volume is the TPU, it's Trainium, and it's Rubin. Today, Blackwell going to Rubin. Those all connect to Arm. Increasingly they are going to be a 100% Arm. We feel very, very good about the market share there.

[Rene Haas, CEO at Arm]

We also talked about a lot of customers, such as Cloudflare, such as Meta, such as SAP, SK Telecom, OpenAI, customers who simply aren't gonna design their own Arm-based CPU. They've either for CapEx reasons or engineering reasons, for whatever the reasons are, they're not gonna go off and make the spend there. We think it's a market that we can play in in a very large way. I think even indicators of AWS selling Graviton to outside partners, it's kind of an indication that there's just huge demand for Arm-based capacity. We think we're going to play alongside our partners in this space. We also think the opportunity is very large for both.

[Rene Haas, CEO at Arm]

I'm actually confident that by the end of the decade, I believe the largest market share by CPU type will be Arm.

[Vivek Arya, Analyst at BofA Securities]

Thanks very much.

[Operator]

Thank you. Our next question today comes from the line of Timm Schulze-Melander from Rothschild & Co. Please go ahead.

[Timm Schulze-Melander, Analyst at Rothschild & Co Redburn]

Yeah, hi. Thanks very much for taking my question. Rene, maybe just to start with you and to key off that, CPU TAM, commentary you just made there. I just wanna check did I heard you right that you anticipate a 100% attach rate of Arm CPU with, those accelerators you mentioned. Maybe just looking forward from an OpEx perspective, as you get into that merchant market, as your products attach to some of your partners' products, do you have any undertakings in terms of operating expenses, in terms of, you know, in-market customer support? I had a quick follow-up for Jason.

[Rene Haas, CEO at Arm]

Yeah. Thank you for the question, Timm. Yeah, well, so to clarify my comment, my expectation is that for the Trainium platform over time, TPUs over time, and NVIDIA's accelerators over time, I believe that the vast majority of the market share there will be Arm. NVIDIA is there, essentially, and we are starting to see that happen with Graviton already over the last number of quarters, and the announcement that Google made at Google Cloud Next with the TPU 8t and 8i, the training and inference chips. That trend is well underway. The reason for it, as stated, is that by getting much better performance in the same power envelope, the overall performance of the platform is greatly improved.

[Rene Haas, CEO at Arm]

Google is talking about an 80% improvement in terms of the overall performance. It's really numbers like that and the advantages that customers see in terms of embracing the platform that gives us very, very high confidence that that trend should continue. If I understood your question correctly on the OpEx side or customer support issues, et cetera, et cetera, relative to Arm-based server racks being bought by customers, what I would expect it would be a relationship that we would typically have with our partners with the ODMs, where they're building finished racks and design. The customer is responsible for the software. We're not delivering the application software, but anything regarding the low-level code, the firmware, the boot ROM, that's all on us. We'll have customer support ready for that.

[Rene Haas, CEO at Arm]

Of course, if there's any issues regarding the hardware, we will manage that all ourselves. Relative to the OpEx associated with that inside the company, I'll let Jason bridge on to that. That's all baked in in terms of when we talk about the growth rate of headcount. We've taken all of that into consideration relative to what, a customer support platform solution looks like.

[Jason Child, CFO at Arm]

Yeah. In terms of the OpEx for support, that was baked in the numbers that we shared at Arm Everywhere and embedded within our long-term guidance, and so already accounted for.

[Timm Schulze-Melander, Analyst at Rothschild & Co Redburn]

Got it. Maybe the quick follow-up, just looking at FY 2027 for the year. Jason, could you just give us some help in terms of the shape of how you expect royalty revenues to kind of flow through the year and maybe some commentary around the OpEx as well would be really helpful. Thank you.

[Jason Child, CFO at Arm]

Yeah. I expect that the royalty growth is going to be in the roughly 20% for the year. Across each of the quarters, you know, you know, plus or minus depending on the quarter, but we'll all be, you know, relatively close to the 20% range. And that's really for both license and royalty. The license will be just like the last, I guess, the last three years, will be a little bit back-end weighted. I think it's about 60% probably second half versus 40% front half. On OpEx

[Jason Child, CFO at Arm]

I know, you know, we initially had thought maybe the OpEx would step up a little more into Q, from Q4 into Q1. You know, as we just guided to, we're expecting that to be a little less than we thought before. Now I would expect that the license, or I'm sorry, that the OpEx growth is gonna grow sequentially every quarter, by, you know, call it a few percent. The overall expense will still kind of be, you know, we'll show incremental margin improvement throughout the year, and we will be growing expenses less than revenue by the time, you know, by the time we end the year. It will be building, you know, kind of slowly throughout the year.

[Jason Child, CFO at Arm]

We will be, you know, getting back to delivering incremental margin by end of year, like we, you know, like where we were at a couple years ago before we started the investments in.

[Timm Schulze-Melander, Analyst at Rothschild & Co Redburn]

Great. Very helpful. Thank you.

[Operator]

Thank you. Our next question today comes from the line of Krish Sankar from TD Cowen. Please go ahead.

[Krish Sankar, Analyst at TD Cowen]

Yeah. Thanks for taking my question. Rene, I had a question on the CPU to GPU ratio. It seems like with inference as a compelling case for AGI CPU, kind of wondering what is your assumption on when we get to one-to-one, and do you expect the CPU to GPU ratio to cross one-to-one? And also if you can differentiate between the opportunity in the head node versus the host node, that'd be very helpful. Thank you.

[Rene Haas, CEO at Arm]

Yeah. I think it's a kind of a complex question in terms of thinking about today's world and statically how things look. The way I think the think about it is that while the ratios may not go to more CPUs than GPUs from a chip standpoint, they probably will from a core count standpoint. What do I mean by that? The way to think about Blackwell and Rubin and some of these large accelerators is that they're pretty much reticle limited, meaning that the size of the chips is already limited by the amount of area that a mask can print. It's not like you're gonna get many more GPUs. One could argue how efficient those GPUs are as they consume all that silicon.

[Rene Haas, CEO at Arm]

On the flip side, CPUs today, the Arm AGI CPU, for example, it's 136 CPU cores. Vera, that's 88. As I mentioned earlier, could I see those core counts doubling or quadrupling over the next number of years? Absolutely. Does that mean that the ratio of chips stay the same if one chip has 500 cores and it used to have 136 cores? Clearly the ratios are going to change from a CPU core count, maybe not a chip count. Where we'll see the growth, in my opinion, is not so much in the head node to a GPU architecture because it's a little bit fixed given the way the GPU is architected and how it feeds to CPU.

[Rene Haas, CEO at Arm]

Will you see many more CPUs inside a data hall, dedicated racks of CPUs that are doing agentic orchestration and scheduling and management? One hundred percent. You simply just have to look at NVIDIA announcing a dedicated Vera rack, 256 Vera CPU chips, 88 cores per chip in a 200 kW liquid-cooled rack. That is designed to sit in a data center adjacent to a Vera Rubin system. That's simply because of the size of the system. It's liquid-cooled. Imagine a world where you had scores of Vera Rubin racks. Now you may actually have a Vera rack in between or two Vera racks. That changes the ratios completely. I think one thing we know for sure is that we probably have undercalled the CPU demand in terms of the transition here.

[Rene Haas, CEO at Arm]

We talked about a 4x increase. We could get our heads around a bigger number than that. Ratios are a tough way to look at it, just given the math that I just described.

[Krish Sankar, Analyst at TD Cowen]

Thank you, Rene. Very helpful.

[Operator]

Thank you. We will now take our next question. The next question comes from the line of Sebastien Naji from William Blair. Please go ahead.

[Sebastien Naji, Analyst at William Blair]

Yeah. Thank you. It's great to see the strong demand for your AGI CPU. One of the questions that is top of mind for many investors is how this shift in your business model is impacting some of your existing IP customers who also sell Arm-based CPUs in some form. Could you maybe just give us a sense of how your larger customers have reacted since your announcement in March, and how you think about managing that potential tension between your product and IP businesses?

[Rene Haas, CEO at Arm]

Yeah. Thank you for the question. It's a super important question. One of the things that we wanted to ensure relative to the overall strategy of selling silicon, is that we had the support of the ecosystem. For us, the ecosystem represents a lot of different partners. The ecosystem are the people who build Arm-based chips like Samsung or TSMC. That ecosystem is EDA partners like Synopsys and Cadence. The huge amount of people who work in the software space, in the Linux world, and everything around Kubernetes containers, for example. Of course our licensees, AWS or Microsoft or Google or NVIDIA, in this case, all who have products.

[Rene Haas, CEO at Arm]

We went to them early on this, we explained to them what we were doing, we explained to them why we were doing it, and we explained to them why it was beneficial to the Arm ecosystem that we do it. That's largely because the more software that's written and optimized for Arm makes everyone stronger. We asked for their support of the strategy at the Arm Everywhere day. Every single partner we asked said yes. We had probably over 50 different partners, the names I just gave you, all of them. In some cases, they provided a quote. In some cases, they provided references to other partners. Then in some cases, they did a video for us, which we used at the event.

[Rene Haas, CEO at Arm]

I think by the fact that everyone was asked and everyone said yes and how can I help, I think is about as good as an endorsement I could give for that. We're deeply grateful for it. We don't take it for granted. We're very, very appreciative of it. We think, again, it lifts all boats. Probably the last thing I would say on this is that the primary reason we did this was that our customers asked for it. At the end of the day, we are responding to customer demand in a market, and we see this today because we're sold out, and we've got people looking for more products. There's demand for these products. At the end of the day, customer demand speaks volumes.

[Sebastien Naji, Analyst at William Blair]

Very clear. Thank you.

[Operator]

Thank you. Our next question for today comes from the line of Vijay Rakesh from Mizuho. Please go ahead.

[Vijay Rakesh, Analyst at Mizuho]

Yeah, hi. Thanks. Great quarter and guide here. Rene, just a quick question. As you look at the demand on agentic AI CPUs, and obviously the CSPs seem to be ramping up on that as well. How is your data center royalty revenues growing, I guess, as you look at fiscal 2027 over last year? I'm sure that's picking up, any color around that?

[Rene Haas, CEO at Arm]

The royalties associated with customers building chips based on Neoverse, those royalties have doubled year-on-year. I'm looking at Jason here. I'd expect they're gonna double year-on-year again in this year. The answer to that statement is yes. That business is incredibly strong. When we talked last quarter in February and I said that this was gonna be our largest business, I was speaking about it in the context of how big the royalties were. Now when we add the Arm AGI CPU business, we have two extremely strong sources of revenue that I think the best way to think about it is, don't cannibalize each other. They're going to run in tandem with each other. We're gonna have a strong business around the Arm AGI CPU.

[Rene Haas, CEO at Arm]

We talked about $15 billion by fiscal year 2031. We also have an IP business that we expect to double to $10 billion, and that IP business will largely be driven by data center.

[Vijay Rakesh, Analyst at Mizuho]

Got it. Thanks. On the licensing revenue side, should we still think of it as a high single-digit percent growth FY 2027, FY 2028? Is that trending higher too with Armv9 and other stuff?

[Jason Child, CFO at Arm]

Well, for this year, I think we said you should expect license revenue to be more in the 20% range. Over time, I would expect, I think the long-term target's probably in the high single-digit, low double-digit range. You know, it's hard to say for say. You know, we've seen this kind of AI investment super cycle or whatever folks are calling it, has now gone on for three years. I, you know, who knows how much longer it goes, but it's at least gonna happen for the next year. You know, beyond that, hard to say.

[Jason Child, CFO at Arm]

I would expect at least, you know, at least 10% year-on-year growth for the long term is probably being the floor that we can see for right now.

[Vijay Rakesh, Analyst at Mizuho]

Great. Fantastic. Thank you.

[Operator]

Thank you. We will now take the next question. The question comes from the line of Harlan Sur from JPMorgan. Please go ahead.

[Harlan Sur, Analyst at JPMorgan]

Yeah, good afternoon. Thanks for taking my question, and congrats on the expanded AGI demand profile. On the $1 billion of revenues for AGI across 2027 and 2028, most of it obviously is gonna be in 2028. I think at the event you told us gross margin profile on these first gen products is about 30%+. I know it's embedded in your total cost structure, but Jason, can you just give us a rough sense on the OpEx attributed to supporting your chip business this year and next year? I know it's early revenues, but I'm just trying to figure out like the scale of the chip business cost structure. As you drive your chip revenues higher, like when can it drive accretion to the earnings power?

[Harlan Sur, Analyst at JPMorgan]

I know the calendar 2030 endpoint I think is roughly $3 billion in OpEx for the chip business, but where is it this year, next year?

[Jason Child, CFO at Arm]

Yeah. I would. It's a good question. I would say, yeah, the revenue split for 2027, 2028, something like $90 million for Q4 2028, and then $910 million or whatever for 2028. That's kinda what we laid out five or six weeks ago. As said, we have demand above that. For right now let's just, you know, assume that's the number until we work through some of the, you know, wafer and memory shortage issues. In terms of the OpEx, yeah. The OpEx that's in our plan and what we've guided to, that does include the support related to that business.

[Jason Child, CFO at Arm]

If you kinda just look at that business on a standalone basis, we see it as a business that, you know, because a lot of the cost of development is really.

[Jason Child, CFO at Arm]

You know, the probably the most expensive part of developing the chip is really the compute die, which really is effectively, you know, kind of the CSS. We're able to kind of leverage that. That automatically makes this business much more profitable as a standalone chip business, given that we get, you know, we get kind of that work as part of our IP business already. The incremental costs and OpEx we're having to add to the chip business is, you know, not that significant. It's a, it's a team that's in the, you know, probably in the dozens of people, not hundreds. You can assume that it's operating profit positive next year.

[Jason Child, CFO at Arm]

You know, when you go out to say 2031, I think we said the IP business probably gets to something like a 65% operating margin, business or EBITDA margin business, and that the chip business is probably in the, you know, 35%-ish range. You know, that's where we expect to get to. How quickly we get there is probably gonna be a function of how fast the revenue grows. You know, at least at a $15 billion rate, I think those are the right numbers based on everything we see right now.

[Operator]

Thank you. We will now take our final question for today. The final question comes from the line of Lee Simpson from Morgan Stanley. Please go ahead.

[Lee Simpson, Analyst at Morgan Stanley]

Great. Thanks so much for squeezing me in at the end here. I just wanted to go back to the ratio of CPUs to GPUs, particularly as it relates to orchestration. I think, Rene, you mentioned it's better to look at this really from a core count perspective, particularly when handling these agentic sessions. I'm just trying to get a sense from a bottom-up perspective. Are we looking at this as each agentic flow requires one core? Or could we look at this differently and say that there is an average number of Arm instructions that are needed to orchestrate each token generated by the accelerator? Thanks.

[Rene Haas, CEO at Arm]

Yeah. Thank you, Lee. You've gone into deep math there. I think the latter is a little too complicated to think about it. The maybe a more straightforward way to think about it is each of these agents are running a batch or running a job themselves. There is certainly a level of complexity in terms of the way the branch prediction coding is handled and essentially the way you would code the example. If you just think about the nature of an asynchronous workload for an agent, it runs a job, it does some scheduling, it stops, it waits, it pauses. It's actually pretty good for a single core design to handle that, as opposed to having multi-cores having to run that all together in unison.

[Rene Haas, CEO at Arm]

It's gonna be more power efficient if you run it through a single core. The more cores you have, in theory, the more batches you can run. Our viewpoint is very much one of more cores is better, that's why I think you're gonna see increasingly larger core counts in these CPU chips. You'll see more CPUs, cores being shipped. You may not see three extra chips, but the chips will be more expensive, which is why when people look at a $100 billion TAM in five years or a $125 billion, what-whatever the number is, largely that's gonna be driven by the fact that these CPU chips are gonna have lots of CPU cores, which will drive ASP up.

[Rene Haas, CEO at Arm]

I think it's a core, it's a per core batch job, not a, not multiple instructions across multiple cores.

[Operator]

Thank you. I will now hand the call back for closing remarks.

[Rene Haas, CEO at Arm]

Thank you, and thank you for all the questions. You know, this was an amazing quarter. $1.5 billion approximately in revenue not long ago is what Arm did in a single year. To do nearly $5 billion in revenue a few years after the public offering of the company, when we projected around this time we'd be doing about four and a half billion dollars, is a great testament to all the work done by Arm's employees, customers, and partners. What we are seeing, to be clear, is unprecedented compute demand, and that we are at the center of that demand growth. The best way to think about Arm's growth trajectory, particularly now that we've announced the Arm AGI CPU, is that we have two growth vectors that will drive this.

[Rene Haas, CEO at Arm]

The Arm AGI chip, as we talked about, with $1 billion of demand in March 24th, we're now seeing over $2 billion of demand over the next two years, 2x what we talked about. We're on track to achieve $15 billion of revenue by fiscal 2031. Our business around IP, the Neoverse IP with CSS, has doubled year-on-year. We're projecting it to double again year-on-year. We are seeing adoption and acceleration with AWS, Google, NVIDIA, and Microsoft. Both of these vectors represent a structural growth for Arm that is very, very strong and very sustainable. With that, thank you again for all your questions, and we appreciate all your interest in Arm.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Jason Child, CFO
• Rene Haas, CEO

Analysts

• Andrew Gardiner, Analyst at Citi
• Harlan Sur, Analyst at JPMorgan
• Jeff Kvaal, Head of Investor Relations at Arm
• Joe Quatrochi, Analyst at Wells Fargo
• Krish Sankar, Analyst at TD Cowen
• Lee Simpson, Analyst at Morgan Stanley
• Sebastien Naji, Analyst at William Blair
• Timm Schulze-Melander, Analyst at Rothschild & Co Redburn
• Vijay Rakesh, Analyst at Mizuho
• Vivek Arya, Analyst at BofA Securities