ARM Q1 Earnings Call Highlights

Key Points

• Record Q1 performance: Revenue rose 22% year over year to $1.29 billion, while non-GAAP EPS increased 29% to $0.45, exceeding the high end of guidance. Licensing and royalty revenue both reached records.
• Cloud AI drives growth: Data-center royalty revenue more than doubled as hyperscalers expanded Arm-based deployments, including products from NVIDIA, Google, AWS and Microsoft. However, smartphone weakness and elevated memory prices led Arm to reduce its full-year royalty-growth outlook to the high teens.
• AGI CPU opportunity expands: Demand for Arm’s new AGI CPU has exceeded $2 billion, more than double the company’s initial fiscal 2027–2028 opportunity estimate of $1 billion, though supply constraints remain across wafers, substrates, testing and memory.

ARM NASDAQ: ARM reported record first-quarter fiscal 2027 results, with revenue rising 22% year over year to $1.29 billion as demand for its computing platform expanded across cloud AI infrastructure, edge devices and physical AI applications.

Chief Executive Officer Rene Haas said the company delivered record first-quarter licensing and royalty revenue. Royalty revenue increased 22% to $715 million, while licensing revenue rose 23% to $574 million. Non-GAAP earnings per share increased 29% to $0.45, above the high end of the company’s guidance.

“AI is changing where and how compute happens,” Haas said, pointing to the continued transition toward Arm-based systems in data centers as well as growing applications in PCs, smartphones, vehicles, robotics and industrial systems.

Data Center Momentum Drives Royalty Growth

Chief Financial Officer Jason Child said cloud AI remained the largest driver of royalty growth, with data center royalty revenue more than doubling year over year. The company cited continued deployments of Arm-based server chips by hyperscale customers, along with networking products such as data processing units and SmartNICs.

Arm said Neoverse shipments have surpassed 1.5 billion cores, with the latest 500 million cores shipping in nine months, compared with six years for the first 1 billion. Haas highlighted several customer developments, including NVIDIA bringing its Arm-based Vera CPU into production, Google’s use of its Arm-based Axion CPU in AI infrastructure and AWS plans to deploy tens of millions of Graviton5 cores for agentic AI workloads.

Microsoft expanded Azure Cobalt 200 virtual machines built on Arm Neoverse Compute Subsystems, while Qualcomm announced plans to enter the AI data center CPU market with its Arm-based Dragonfly C1000, according to Haas.

Child said edge AI royalty revenue continued to grow despite softness in the smartphone market. The company has benefited from higher royalty rates as Armv9 and Compute Subsystems gain greater penetration in smartphones, tablets and other consumer electronics.

However, management said elevated memory prices have pressured handset demand across market segments. Haas said Arm has been partially insulated from weaker unit sales because a larger share of customers are using Armv9 and Compute Subsystems, which carry higher royalty rates.

Child said the company now expects full-year royalty growth to be closer to the high teens, versus prior expectations of about 20%, while maintaining that cloud AI growth is helping offset smartphone weakness. For the second quarter, Arm expects royalty revenue growth in the low teens.

AGI CPU Demand Exceeds $2 Billion

Arm also updated investors on its Arm AGI CPU business, introduced in March as another way for customers to deploy the Arm compute platform. Haas said initial products have been delivered to multiple customers and the company has secured manufacturing capacity to support the previously outlined $1 billion opportunity across fiscal 2027 and fiscal 2028.

Demand has now exceeded $2 billion, according to Haas, as Arm adds customers in the U.S. and China and expands its pipeline. The company is working with manufacturing and supply-chain partners to increase available capacity.

“Our confidence in achieving upside to our $1 billion opportunity for the Arm AGI CPU business has increased in the past 90 days,” Haas said.

Management said supply remains constrained across wafers, substrates, testing capacity and memory, but Arm has become more confident in its ability to secure the components needed to support revenue above $1 billion. The company plans to provide a more detailed update during its fiscal third-quarter results, when it expects to have better visibility into the fourth quarter of fiscal 2027 and fiscal 2028.

Child said initial gross margin expectations for the AGI CPU business remain unchanged, at high-30% to low-40% levels for the first generation. He said Arm expects margins to reach 50% over the next couple of years as it brings more work in-house.

Haas said the 128-core Arm AGI CPU can address traditional servers, head-node applications and agentic AI workloads. While he did not provide details on future product specifications, he said the industry trend is toward CPUs with more cores to support agentic workloads more efficiently.

Licensing Activity and Profitability

Licensing and other revenue reached $574 million, including $193 million from Arm’s technology licensing and design-services agreement with SoftBank. Child said the company expects the quarterly run rate from that agreement to be around $200 million for the remainder of the year.

Arm signed multiple high-value agreements during the quarter as existing customers renewed long-term licenses, according to Child. The agreements included customers in hyperscale computing, automotive, robotics and handset markets seeking access to Arm’s future technology roadmap.

Annualized contract value, which Arm uses as an indicator of underlying licensing trends, increased 13% year over year. Child said that pace remains above the company’s long-term expectation for licensing revenue growth.

Non-GAAP operating expenses rose 18% to $733 million, largely reflecting research and development investment. The result was about $27 million below the company’s guidance because of timing related primarily to tool utilization, including emulation and cloud spending, Child said.

Non-GAAP operating income was $531 million, producing an operating margin of about 41%, up 200 basis points year over year. Arm generated $665 million in free cash flow during the quarter and $1.4 billion over the trailing 12 months.

Second-Quarter Outlook

For the fiscal second quarter, Arm forecast:

• Revenue of $1.38 billion, plus or minus $50 million.
• Year-over-year revenue growth of about 22% at the midpoint.
• Licensing and other revenue growth of about 30% year over year.
• Royalty revenue growth in the low teens year over year.
• Non-GAAP operating expenses of approximately $780 million.
• Non-GAAP earnings per share of $0.47, plus or minus $0.04.

Haas said Arm’s core IP business continues to perform strongly, led by data center expansion, while the newly introduced AGI CPU business represents a second growth driver. “The confidence level we have in the success of that product only continues to increase,” he said.

About ARM (NASDAQ:ARM)

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.

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