Analysis
Arm Holdings reported revenue of $1.44 billion for its fiscal second quarter ended September 30, 2026, up 27% from a year earlier and its fifth straight quarter of growth above 20%, according to the shareholder letter Arm furnished to the SEC on Form 6-K on November 4. Licensing carried the quarter, growing 50%, while royalties from data center chips doubled.
Arm guided fiscal third-quarter revenue to $1.54 billion, plus or minus $50 million.
What does Arm do?
Arm, based at 110 Fulbourn Road in Cambridge, England and listed on Nasdaq under the ticker ARM, designs the processor architecture and core IP that chipmakers license, then collects a royalty on each chip its partners ship. The letter says partners reported more than 10 billion Arm-based chips shipped in the quarter, 1.5 billion more than a year earlier, on a platform used by more than 30 million developers. Arm now also sells its own silicon. Arm AGI CPU, launched in March, has purchase orders from multiple customers running through calendar 2027, with first commercial deliveries on track for fiscal Q4 2027. Oracle Cloud Infrastructure plans to offer Arm AGI CPU instances in 2027. Pulse has tracked Arm through 2026, including its early takeover talks with interconnect startup Eliyan in October.
“Arm guided fiscal third-quarter revenue to $1.54 billion, plus or minus $50 million.”
Arm Q2 fiscal 2027 results
The full set of figures from the shareholder letter:
- Revenue: $1,443 million, up 27%, Arm's best second quarter on record.
- License and other revenue: $773 million, up 50%, helped by the timing of several high-value license agreements.
- Royalty revenue: $670 million, up 8%, partly offset by memory pricing in the smartphone market.
- Annualized contract value: $1,790 million, up 12%.
- Earnings per share: non-GAAP $0.52, up from $0.39; GAAP $0.12, down from $0.22.
- Margins: non-GAAP operating margin 44.2%, up from 41.1%; GAAP operating income $201 million.
- Balance sheet: $3,621 million of cash and short-term investments; trailing free cash flow of $1,096 million.
How fast is Arm gaining in the data center?
Arm says its share of servers at the top hyperscalers more than tripled, from 15% in calendar 2024 to more than 50% in calendar 2025, and it expects more than 60% by the end of calendar 2026 as Google Axion, AWS Graviton, Microsoft Cobalt and Nvidia platforms ramp. The company cited Signal65 testing in which Arm AGI CPU delivered roughly 2x the performance per rack of AMD's EPYC 9755. That is a direct challenge to x86: a day earlier AMD reported record data center revenue of $8.5 billion, up 97%, in its third-quarter release. Outside the data center, Arm-based PCs reached about 20% of global shipments, and physical AI royalty revenue, mostly cars, grew 50%.
What the beat hides
Investors were not impressed. Shares fell about 2% in extended trading, Grafa reported, and the report's estimates show where the quarter fell short:
- Royalty revenue: $670 million delivered against an estimate of $720.8 million.
- License revenue: $773 million delivered against an estimate of $625.1 million.
- Third-quarter revenue guidance: $1.54 billion against a $1.53 billion consensus.
Arm's own letter says license revenue moves with the timing and size of large agreements, so a 50% jump is harder to repeat than royalty growth, which compounds with every chip shipped. GAAP net income was $130 million as GAAP research and development spending reached $857 million.
Arm's next milestones
Arm guided third-quarter non-GAAP earnings per share to $0.56, plus or minus $0.04, on about $825 million of non-GAAP operating expense.
CEO Rene Haas said growing customer commitments give Arm "even greater confidence" in reaching up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028. The risk sits in that same sentence: every AGI CPU sold to a hyperscaler competes with chips designed by Arm's own licensees, and first commercial deliveries are not due until fiscal Q4 2027.