Arm Holdings Beats Revenue Estimates as AI Demand and Data Center Growth Offset Smartphone Weakness

Arm Holdings Beats Revenue Estimates Driven by AI Demand

Arm Holdings reported fiscal second-quarter revenue of $1.44 billion, exceeding Wall Street estimates of $1.38 billion, as AI demand and data center deployments fueled 27% year-over-year growth1

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. The company's adjusted earnings per share reached $0.52, surpassing analyst expectations of $0.472

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. Unlike traditional chipmakers, Arm Holdings licenses its processor architecture and collects royalties on chips shipped using its technology, making licensing fees and royalty payments its primary revenue sources.

Data Center Deployments Surge Past 50% at Major Cloud Providers

Arm's server chip architecture now accounts for more than 50% of deployments at major cloud providers in 2025, with expectations to exceed 60% by the end of 20261

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. Data center royalties more than doubled year over year, with cloud AI driving most of the overall royalty growth4

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. Major cloud companies are increasingly developing custom processors for AI workloads using Arm's chip architecture. Google has begun deploying its Arm-based Axion chips in systems running TPU AI hardware, illustrating how CPU hosts and accelerators are being designed together2

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. Arm's power-efficient design has become increasingly valuable as operators seek to control energy and cooling costs associated with running large AI models1

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Licensing Revenue Soars While Royalty Growth Slows

Licensing revenue reached $773 million, significantly exceeding estimates of $625.1 million, as customers paid upfront fees for access to Arm's technology1

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. However, royalty revenue rose just 8% to $670 million, missing analyst estimates of $720.8 million1

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. CFO Jason Child attributed the slower royalty growth to weakening smartphone sales driven by higher memory prices4

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. The company had previously guided full-year royalty growth closer to the high teens, down from an earlier expectation of roughly 20%4

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AGI CPU Ambitions Double to $2 Billion Target

CEO Rene Haas announced that Arm now expects to sell $2 billion worth of AGI CPUs across fiscal 2027 and 2028, doubling the $1 billion in orders announced at the product's launch in March2

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. Haas stated the company has worked with TSMC and other suppliers to secure sufficient raw materials for planned output, including fast DRAM used by the CPU platform2

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. This AGI CPU represents a strategic shift for Arm, as it marks the company's move from purely licensing intellectual property to selling complete processor products directly. The initiative reflects growing demand for AI-related computing products across cloud, devices, and autonomous systems5

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Forward Outlook Shows Continued AI-Driven Momentum

Arm projected third-quarter revenue of $1.54 billion, slightly above the average analyst estimate of $1.53 billion1

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. The company expects adjusted earnings of $0.56 per share, plus or minus 4 cents, compared to analyst forecasts of $0.555

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. Despite the positive results, shares fell approximately 2% in extended trading1

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. Year to date, Arm's shares have climbed more than 82%, with most analysts maintaining bullish ratings—16 of 22 rate it a Buy, with an average price target of $272 pointing to 32.7% upside4

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. Last month, a Delaware jury found Arm breached parts of its licensing agreement with Qualcomm and interfered with the latter's relationship with Meta, but awarded only $2 in damages, leaving key disputes over royalties and future licensing terms to be decided by a judge1

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