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Arm Holdings' Q2 Earnings Call Centers on AGI CPU Expansion
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Key Takeaways
Arm expects $2 billion in AGI CPU revenue across fiscal 2027-28, with shipments targeted for fiscal Q4 2027.
Arm-based servers exceeded 50% share at top hyperscalers in 2025, with that share seen topping 60% in 2026.
Arm's license and other revenue jumped 50% to $773 million as customers accelerated long-term commitments.
Arm Holdings plc (ARM - Free Report) highlighted stronger AGI CPU demand on its second-quarter fiscal 2027 earnings call, backed by customer orders and supply commitments. Management also emphasized data center adoption.
The company reported revenues of $1.44 billion compared with the Zacks Consensus Estimate of $1.37 billion. Non-GAAP earnings of $0.52 per share topped the $0.48 estimate, underpinning its expansion plans.
ARM Holdings PLC Sponsored ADR Price, Consensus and EPS Surprise
CEO Rene Haas said that customer orders and improved supply have strengthened confidence in generating up to $2 billion of AGI CPU revenues across fiscal 2027 and 2028. Shipments are targeted for the fourth quarter of fiscal 2027.
Responding to StoneX, Haas identified Meta as the principal customer but confirmed additional buyers. Securing wafers, substrates, testing capacity and memory remains critical to deliveries.
CFO Jason Child told Susquehanna that third-quarter shipments would be minimal, if any. Answering Wells Fargo, Child projected first-generation AGI CPU gross margins around 30%-40%, with a longer-term target above 50% on later designs. Haas cited some pricing flexibility to offset higher component costs.
ARM Expects Data Center Share Gains to Continue
Haas said that Arm-based servers held more than 50% market share at top hyperscalers in calendar 2025, up from 15% in 2024. He expects that share to exceed 60% by the end of 2026.
Data center royalties doubled year over year, with management anticipating triple-digit growth in coming years. Haas cited Amazon, Google, Microsoft and NVIDIA as leading contributors, alongside Oracle's plan to offer AGI CPU instances in 2027.
A William Blair analyst pressed Haas on competition with x86 processors. Haas stressed system efficiency and design flexibility, clarifying that its AGI CPU benchmark compared against an AMD processor preceding the newer Venice generation.
Child said that license and other revenues rose 50% year over year to $773 million, about $100 million above management's forecast, as customers accelerated longer-term commitments. The SoftBank agreement contributed $209 million.
The quarter included three new Arm Total Access agreements and four compute subsystem licenses, split between data center and smartphone applications. Active Total Access subscriptions exceeded 60, supporting future royalty opportunities.
Asked by Morgan Stanley whether the higher licensing level was sustainable, Child declined to establish a new quarterly baseline. He described a stronger-than-expected pipeline and said agreements can produce royalties within 12 to 24 months.
ARM Sees Contrasting Trends Beyond the Cloud
Child said that edge AI royalties were roughly flat year over year as higher memory prices pressured lower- and midrange smartphone shipments. Higher Armv9 and subsystem royalty rates offset weaker volumes.
In response to Bank of America, Child said that smartphone unit expectations for next year were broadly flat. Nevertheless, he anticipated at least double-digit growth in Arm's mobile business, supported by further adoption of higher-value technology.
Physical AI royalties grew 50% year over year, driven by automotive and robotics demand. Haas highlighted Arm Total Design for physical AI, involving more than 80 companies.
Arm Details Q3 Expectations and Investment Priorities
For third-quarter fiscal 2027, Child projected revenues of $1.54 billion, plus or minus $50 million, and non-GAAP earnings of 56 cents per share, plus or minus four cents.
He expects licensing revenue growth of slightly more than 50% year over year. Royalties are expected to rise by low teens sequentially but grow only low single digits year over year, with cloud and physical AI strength offset by smartphone weakness.
Non-GAAP operating expenses are projected at approximately $825 million as engineering investment continues. Last quarter, expenses rose 19% to $774 million, while the non-GAAP operating margin reached 44.2%.
ARM Keeps Two Business Models in View
Haas framed ARM's direction around two complementary businesses: licensing intellectual property to chip designers and selling its own AGI CPU silicon. Both share its architecture and developer ecosystem.
Management's priorities remain expanding silicon supply, deepening licensing relationships and sustaining research investment. Memory costs and smartphone demand remain constraints.
What ARM's Zacks Rank and Style Scores Indicate
ARM carries a Zacks Rank #3 (Hold) at present, a neutral near-term rating. Its Growth Score of A and Momentum Score of A indicate favorable traits, while its Value Score of F indicates weaker valuation appeal. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its VGM Score of C trails the A or B scores preferred in Zacks' screening framework. The Zacks Rank may change as analyst earnings estimates are revised following the latest results.
View the Zacks #1 Rank List
Image: Bigstock
Arm Holdings' Q2 Earnings Call Centers on AGI CPU Expansion
Key Takeaways
Arm Holdings plc (ARM - Free Report) highlighted stronger AGI CPU demand on its second-quarter fiscal 2027 earnings call, backed by customer orders and supply commitments. Management also emphasized data center adoption.
The company reported revenues of $1.44 billion compared with the Zacks Consensus Estimate of $1.37 billion. Non-GAAP earnings of $0.52 per share topped the $0.48 estimate, underpinning its expansion plans.
ARM Holdings PLC Sponsored ADR Price, Consensus and EPS Surprise
ARM Holdings PLC Sponsored ADR price-consensus-eps-surprise-chart | ARM Holdings PLC Sponsored ADR Quote
Arm Sees Greater AGI CPU Revenue Potential
CEO Rene Haas said that customer orders and improved supply have strengthened confidence in generating up to $2 billion of AGI CPU revenues across fiscal 2027 and 2028. Shipments are targeted for the fourth quarter of fiscal 2027.
Responding to StoneX, Haas identified Meta as the principal customer but confirmed additional buyers. Securing wafers, substrates, testing capacity and memory remains critical to deliveries.
CFO Jason Child told Susquehanna that third-quarter shipments would be minimal, if any. Answering Wells Fargo, Child projected first-generation AGI CPU gross margins around 30%-40%, with a longer-term target above 50% on later designs. Haas cited some pricing flexibility to offset higher component costs.
ARM Expects Data Center Share Gains to Continue
Haas said that Arm-based servers held more than 50% market share at top hyperscalers in calendar 2025, up from 15% in 2024. He expects that share to exceed 60% by the end of 2026.
Data center royalties doubled year over year, with management anticipating triple-digit growth in coming years. Haas cited Amazon, Google, Microsoft and NVIDIA as leading contributors, alongside Oracle's plan to offer AGI CPU instances in 2027.
A William Blair analyst pressed Haas on competition with x86 processors. Haas stressed system efficiency and design flexibility, clarifying that its AGI CPU benchmark compared against an AMD processor preceding the newer Venice generation.
Arm's Licensing Pipeline Supports Future Royalties
Child said that license and other revenues rose 50% year over year to $773 million, about $100 million above management's forecast, as customers accelerated longer-term commitments. The SoftBank agreement contributed $209 million.
The quarter included three new Arm Total Access agreements and four compute subsystem licenses, split between data center and smartphone applications. Active Total Access subscriptions exceeded 60, supporting future royalty opportunities.
Asked by Morgan Stanley whether the higher licensing level was sustainable, Child declined to establish a new quarterly baseline. He described a stronger-than-expected pipeline and said agreements can produce royalties within 12 to 24 months.
ARM Sees Contrasting Trends Beyond the Cloud
Child said that edge AI royalties were roughly flat year over year as higher memory prices pressured lower- and midrange smartphone shipments. Higher Armv9 and subsystem royalty rates offset weaker volumes.
In response to Bank of America, Child said that smartphone unit expectations for next year were broadly flat. Nevertheless, he anticipated at least double-digit growth in Arm's mobile business, supported by further adoption of higher-value technology.
Physical AI royalties grew 50% year over year, driven by automotive and robotics demand. Haas highlighted Arm Total Design for physical AI, involving more than 80 companies.
Arm Details Q3 Expectations and Investment Priorities
For third-quarter fiscal 2027, Child projected revenues of $1.54 billion, plus or minus $50 million, and non-GAAP earnings of 56 cents per share, plus or minus four cents.
He expects licensing revenue growth of slightly more than 50% year over year. Royalties are expected to rise by low teens sequentially but grow only low single digits year over year, with cloud and physical AI strength offset by smartphone weakness.
Non-GAAP operating expenses are projected at approximately $825 million as engineering investment continues. Last quarter, expenses rose 19% to $774 million, while the non-GAAP operating margin reached 44.2%.
ARM Keeps Two Business Models in View
Haas framed ARM's direction around two complementary businesses: licensing intellectual property to chip designers and selling its own AGI CPU silicon. Both share its architecture and developer ecosystem.
Management's priorities remain expanding silicon supply, deepening licensing relationships and sustaining research investment. Memory costs and smartphone demand remain constraints.
What ARM's Zacks Rank and Style Scores Indicate
ARM carries a Zacks Rank #3 (Hold) at present, a neutral near-term rating. Its Growth Score of A and Momentum Score of A indicate favorable traits, while its Value Score of F indicates weaker valuation appeal. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its VGM Score of C trails the A or B scores preferred in Zacks' screening framework. The Zacks Rank may change as analyst earnings estimates are revised following the latest results.