What ARM (ARM) Said on Its Q2 Earnings Call

Key Points

• Arm reported record Q2 fiscal 2027 revenue of $1.44 billion, up 27% year over year, while non-GAAP EPS rose 33% to $0.52. Licensing revenue surged 50% to $773 million, exceeding expectations by about $100 million.
• Arm raised its confidence in generating up to $2 billion in AGI CPU revenue across fiscal 2027 and 2028, citing customer orders and secured supplier capacity. First commercial deliveries remain on track for fiscal Q4 2027.
• Data center royalties doubled year over year, helping offset smartphone-related pressure, and Arm expects strong cloud demand to support further growth. For fiscal Q3, it forecast revenue of $1.54 billion, plus or minus $50 million, and non-GAAP EPS of $0.56, plus or minus $0.04.

ARM NASDAQ: ARM reported record second-quarter fiscal 2027 revenue as licensing demand and data center royalties grew, while executives said they had greater confidence in the sales potential of the company’s forthcoming Arm AGI CPU.

Revenue rose 27% year over year to $1.44 billion, marking Arm’s fifth consecutive quarter of growth above 20%, Chief Executive Officer Rene Haas said. Non-GAAP earnings per share increased 33% to $0.52.

Licensing and other revenue rose 50% to $773 million, while royalty revenue increased 8% to $670 million. Data center royalties doubled from a year earlier, offsetting roughly flat edge AI royalties amid pressure on smartphone sales.

Licensing demand exceeds expectations

Chief Financial Officer Jason Child said licensing revenue came in about $100 million above Arm’s expectations as customers accelerated long-term commitments to access its technology. The company signed three new Arm Total Access agreements, bringing active subscriptions to more than 60, and four additional compute subsystem licenses: two for data center chips and two for smartphones.

Arm’s technology licensing and design services agreement with SoftBank contributed $209 million of the quarter’s licensing revenue, up 17% year over year. Child said he expects the quarterly run rate from that agreement to remain around that level for the rest of the fiscal year.

Annualized contract value grew 12%. Child said that measure helps show underlying licensing trends because revenue can vary significantly between quarters depending on the timing and accounting treatment of large agreements.

Non-GAAP operating expenses rose 19% to $774 million as Arm expanded engineering capacity and invested in new platforms and products. Non-GAAP operating income climbed 37% to $638 million, and the non-GAAP operating margin expanded by 3 percentage points to 44.2%.

Arm raises confidence in AGI CPU outlook

Executives said purchase orders from multiple customers and agreements with suppliers have increased their confidence in achieving up to $2 billion in Arm AGI CPU revenue across fiscal 2027 and 2028. Child said Arm had previously expressed increased confidence in achieving more than $1 billion over that period.

First commercial deliveries remain on track for fiscal fourth-quarter 2027. Child said any shipments in the third quarter would not be substantial and that Arm would provide another update with its third-quarter results.

Haas identified Meta as a chief customer but said Arm expects multiple customers beyond Meta. He said demand had exceeded expectations and that the company had been working for several quarters to secure supplies, including wafers, substrates, testers and memory.

Asked about the cost of obtaining additional supply, Haas said rising system costs create margin pressure, but Arm has some flexibility to increase prices. Child said the company expects the first version of the product to have a gross margin in the high-30% to low-40% range, with a longer-term goal of reaching 50% or more as Arm develops expertise and does more work itself.

Data center growth offsets smartphone pressure

Arm’s data center royalty revenue doubled year over year as Arm-based CPUs expanded in AI infrastructure and general-purpose cloud workloads, Child said. Physical AI royalty revenue grew 50%, driven by automotive and robotics adoption.

Edge AI royalty revenue was roughly flat, as higher memory prices pressured smartphone unit sales, particularly in mid- and lower-tier devices. Child said higher royalty rates from adoption of Armv9 and compute subsystem technologies offset that headwind. He expects edge AI royalties to reaccelerate as smartphone conditions normalize.

Haas said Arm-based server market share at the top hyperscalers rose from 15% in calendar 2024 to more than 50% in 2025. Based on expected deployments across Google Axion, AWS Graviton, Microsoft Cobalt and NVIDIA platforms, Arm expects that share to exceed 60% by the end of calendar 2026.

During the analyst question-and-answer session, Haas and Child expressed confidence that data center royalties could sustain triple-digit growth over the next several years. Haas pointed to market-share gains and the use of Arm CPUs alongside AI accelerators.

Third-quarter guidance

For fiscal third-quarter 2027, Arm forecast revenue of $1.54 billion, plus or minus $50 million. The midpoint would represent approximately 24% growth from a year earlier. The company also projected non-GAAP earnings of $0.56 per share, plus or minus $0.04, and non-GAAP operating expenses of approximately $825 million.

Child said Arm expects licensing and other revenue to grow a little over 50% year over year in the third quarter. Royalty revenue is expected to rise by low-single-digit percentages from a year earlier, as strength in cloud and physical AI is offset by weaker smartphone demand and a difficult comparison with the prior-year period.

About ARM (NASDAQ:ARM)

Arm Holdings plc NASDAQ: ARM is a semiconductor and software design company that develops central processing unit (CPU) architectures and related intellectual property. Rather than manufacturing chips itself, Arm licenses its designs and instruction-set architectures to semiconductor companies and technology manufacturers, which incorporate them into their own products.

The company's offerings include CPU processor cores, graphics processing units through its Mali product family, system IP, development tools and software.

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