Arm’s record Q2 and in-line revenue outlook

Arm Holdings reported record second-quarter fiscal 2027 revenue of $1.44 billion on November 4, 2026, surpassing analyst expectations of $1.38 billion. Adjusted profit reached 52 cents per share, above estimates of 47 cents per share. For the current fiscal third quarter, which runs through December, Arm forecast revenue of about $1.54 billion, close to the average analyst estimate of $1.53 billion. Despite the top- and bottom-line beats and an outlook that met market expectations, the company’s shares fell about 2% in extended trading.

Arm said the record second quarter marked its fifth consecutive period of total revenue growth exceeding 20% year over year. Total revenue rose 27% year over year, reflecting strong execution and growing demand for the Arm compute platform. Licensing and other revenue reached $773 million, representing a 50% year-over-year increase and providing a leading indicator of future royalty growth. Royalty revenue came in at $670 million for the quarter, with data center royalties more than doubling compared with a year earlier.

The company’s business model centers on licensing its processor architecture and collecting royalties on chips shipped using its technology, rather than manufacturing semiconductors. Demand for Arm-based technology has been boosted by the AI boom, as major cloud companies design custom processors for data-center workloads. Arm highlighted that its compute platform underpins both its intellectual property licensing business and a newer silicon business built around the Arm AGI CPU, where demand continues to be described as extremely strong.

Arm reported that its server-chip architecture accounted for more than 50% of deployments at major cloud providers in 2025. Based on current ramps across platforms including AWS Graviton, Google Axion, Microsoft Cobalt and NVIDIA offerings, Arm expects that share to exceed 60% by the end of 2026. The company said data center royalties doubled year over year in the quarter, underscoring the impact of increasing Arm-based infrastructure in hyperscale environments. This trend helped offset weakness in the broader smartphone market cited alongside the company’s guidance.

Arm pointed to rising AI demand across markets as a key growth engine. For the first time, partners reported shipments of more than 10 billion Arm-based chips in a single quarter, an increase of 1.5 billion units year over year. These devices add to an installed base used by more than 30 million developers. Physical AI royalty revenue grew 50% year over year, supported by increased adoption of Arm technology in advanced driver-assistance and in-vehicle infotainment systems.

Across automotive and mobile, Arm said platforms such as Armv9 and Arm Zena CSS are providing the compute, control, safety and security capabilities needed as systems become more intelligent.

Arm reported that its confidence in achieving up to $2 billion in Arm AGI CPU revenue over fiscal years 2027 and 2028 has increased in the past 90 days, supported by additional supply and customer mix. The company also noted that its annualized contract value, a metric for normalized license and other revenue, reached $1.732 billion, increasing 13% year over year. While these figures point to a robust pipeline for future licensing and silicon revenue, the company continues to derive the majority of its income from licensing fees and royalties on Arm-based chips.

On the legal front, a Delaware jury recently found that Arm breached parts of a licensing agreement with Qualcomm (QCOM) and interfered with Qualcomm (QCOM)’s relationship with Meta. The jury awarded $2 in damages, and key issues related to royalties and future licensing terms remain to be decided by a judge. The modest damages award limits the immediate financial impact, while leaving some aspects of the relationship between the companies to be resolved.