Arm Posts Record Revenue, but Shares Fall as Data-Center Royalties Miss Expectations

Arm, the chip-architecture designer, reported fiscal second-quarter revenue of $1.44 billion, up 27% from a year earlier, and adjusted earnings of 52 cents per share. Both figures exceeded Wall Street expectations. Yet Arm shares fell 5.28% during regular trading on November 4. Investors focused less on the headline revenue beat than on royalty revenue of $670 million, below the analyst estimate of $720.8 million, and a third-quarter outlook that was only slightly above consensus.

Demand for AI data centers continues to support Arm’s expansion. The company said data-center royalties doubled year over year, while licensing and other revenue increased 50%. But royalties are collected when customers ship chips using Arm’s designs, making them an important indicator of whether design wins are turning into actual product volumes. Strong licensing revenue did not fully ease concerns about the pace and durability of chip shipments.

Revenue and adjusted earnings beat, but royalties fell short

Arm’s fiscal second-quarter revenue reached $1.44 billion, compared with the analyst average estimate of $1.38 billion. Adjusted earnings were 52 cents per share, above the expected 47 cents. Licensing and other revenue totaled $773 million, up 50% year over year and above the $625.1 million analyst estimate.

Royalty revenue was $670 million, an 8% increase from a year earlier but below the $720.8 million expected by analysts. Arm earns royalties on chips shipped by customers that use its architecture. Licensing fees, by contrast, can be recognized when customers obtain access to technology or sign design agreements. Investors therefore watch whether royalty growth accelerates as customer products move into volume production, rather than relying only on large upfront licensing deals.

The mix helps explain why the headline beat did not translate into a positive share-price reaction. The stronger licensing result lifted total revenue, but the weaker royalty figure raised questions about how quickly customer designs are becoming shipped products.

Data-center royalties double as Arm expands its server share

Arm said royalties from data-center products doubled year over year. The company estimates that Arm-based processors accounted for more than 50% of server deployments at major cloud providers in 2025, up from 15% in 2024. Arm expects that share to exceed 60% by the end of 2026. Its technology is used in platforms including AWS Graviton, Google Axion, Microsoft Cobalt and Nvidia systems.

Training and running AI models require large amounts of computing power, while also increasing electricity and cooling costs. Arm’s architecture is designed around power efficiency. Cloud providers developing their own CPUs can use Arm-based designs to manage data flows and work alongside specialized accelerators.

Arm also said its partners shipped more than 10 billion Arm-based chips during the quarter, an increase of 1.5 billion from a year earlier. The company views the shipment volume and data-center royalty growth as evidence that its architecture is gaining ground across cloud infrastructure.

New CPU business creates an opportunity and an execution challenge

Arm is expanding beyond licensing chip designs into selling its own processors. The company said it has become more confident that its Arm AGI CPU could generate up to $2 billion in revenue across fiscal 2027 and fiscal 2028. It has secured purchase orders from multiple customers extending through calendar 2027, with first commercial deliveries on track for the fourth quarter of fiscal 2027. Oracle Cloud Infrastructure plans to offer Arm AGI CPU instances in 2027.

The move gives Arm a chance to participate directly in data-center chip sales rather than relying only on licensing fees and royalties. It also adds execution requirements: Arm must coordinate manufacturing capacity, product delivery and customer deployment. CEO Rene Haas told Reuters that the company had secured sufficient raw materials from TSMC and other suppliers to support the target.

Third-quarter guidance edges past forecasts but offers little upside

Arm forecast third-quarter revenue of about $1.54 billion, slightly above the analyst consensus of $1.53 billion. Its adjusted earnings guidance was 56 cents per share, plus or minus 4 cents, compared with an average analyst estimate of 55 cents. The outlook was marginally ahead of consensus but did not provide the larger upside surprise some investors had hoped for.

Investors are also assessing the company’s royalty model and its licensing dispute with Qualcomm. Reuters reported that a Delaware jury previously found Arm had breached parts of its licensing agreement, but awarded only $2 in damages. Key questions about royalties and future licensing terms remain for a judge to resolve. The dispute was not settled by this earnings report.

AI demand is growing, but the share-price response shows a higher bar

Arm’s results show that its AI data-center business is expanding. Higher licensing revenue, increased server adoption and orders for the AGI CPU all support the company’s growth strategy. But the royalty shortfall shows that investors still want evidence that customer designs are translating into chip shipments at the expected pace. The 5.28% regular-session share decline reflected that higher bar.

The confirmed figures are second-quarter revenue of $1.44 billion, adjusted earnings of 52 cents per share, royalty revenue of $670 million and a doubling of data-center royalties. Arm’s third-quarter revenue outlook is about $1.54 billion. Future results will depend on customer shipments, AGI CPU deliveries, royalty growth and the outcome of the remaining Qualcomm licensing issues.