Arm Holdings (ARM.US) Q2 earnings beat expectations; licensing revenue increases by 50%, data center royalties double

Jiemian Finance APP reports that British chip design company Arm Holdings (ARM.US) released its financial results for the second quarter of fiscal year 2027, ending September 30, 2026, after the market closed on Wednesday. The company achieved revenue of $1.443 billion for the quarter, a year-on-year increase of 27%, surpassing market expectations and setting a new record for its best second quarter performance. This marks the fifth consecutive quarter Arm has posted year-on-year revenue growth above 20%.

Driven by a surge in artificial intelligence computing power demand, Arm’s licensing and other revenue for the quarter reached $773 million, a 50% year-on-year increase. Royalty revenue was $670 million, an 8% year-on-year increase, with data center royalty revenue doubling compared to the previous year. On a Non-GAAP basis, the company reported diluted earnings per share of $0.52, up 33% year-on-year and also exceeding market expectations.

"Arm delivered its fifth consecutive quarter of over 20% revenue growth, reflecting the strong momentum of our business amid AI-driven computing demand," said Arm CEO Rene Haas. "A 50% increase in licensing revenue shows customers are ramping up investments in Arm’s high-performance computing platform, which will drive higher royalty growth in the future. Meanwhile, demand for our in-house chip business continues to accelerate, with increasing customer commitments, giving us greater confidence in reaching our $2 billion Arm AGI CPU revenue target for fiscal years 2027 and 2028. Arm is becoming the leading computing platform of choice in the AI transformation across markets."

Data center share leaps, in-house chip orders stretch to 2027

The report shows Arm’s share in the data center market is rising rapidly. The share of Arm-based servers among leading hyperscale cloud providers has climbed from about 15% in calendar year 2024 to over 50% in 2025, with the company expecting it to surpass 60% by the end of 2026. Amazon AWS reported more than a twenty-fold year-on-year increase in Graviton chip revenue commitments, Microsoft highlighted strong adoption of Arm-based Cobalt CPUs, and Google now lists Arm-architecture Axion chips as a key part of its AI infrastructure. NVIDIA’s Arm-based Vera CPU platform is now officially available on Oracle Cloud (OCI) and has been deployed in OpenAI production.

Regarding in-house chips, demand for the AGI CPU that Arm launched in March this year remains strong, with multiple customer orders secured and extending into calendar year 2027. The first commercial deliveries are scheduled for the fourth quarter of fiscal year 2027. Oracle Cloud plans to offer Arm AGI CPU instances in 2027.

Milestone in scale: Over 10 billion shipments in a single quarter for the first time

This quarter, Arm’s partners reported that shipments of Arm-architecture chips surpassed 10 billion units in a single quarter for the first time, an increase of 1.5 billion units year-on-year. Arm-based PCs now account for around 20% of global shipments. Physical AI (automotive and robotics) royalty revenue increased by 50% year-on-year.

Stable outlook for next quarter, but concerns persist

Arm expects third quarter fiscal 2027 revenue to be $1.54 billion (plus or minus $50 million), implying quarter-on-quarter growth of about 7%. Non-GAAP diluted EPS is projected at $0.56 (plus or minus $0.04), and Non-GAAP operating expenses are estimated at $825 million.

However, the financial report also reveals some concerns: rising memory prices are squeezing the smartphone market, putting pressure on the mobile segment. Free cash flow for the quarter was $110 million, down 73% year-on-year (free cash flow over the past 12 months was $1.096 billion, remaining stable). On a GAAP basis, net profit for the quarter was $130 million, a year-on-year decrease of 45%, mainly due to a one-time gain of $131 million from business disposals in the same period last year.

After the results were announced, Arm shares fell 0.4% after hours.