ARM Holdings PLC Earnings - Q2 2027 Analysis & Highlights
Arm’s Q2 FY2027 call highlighted strong licensing and data-center royalty growth, rising demand for its AGI CPU, AI-driven compute demand, and expectations for continued growth across its business.
Key financial results
Revenue was $1.44 billion, up 27% year over year; this was a record second quarter and Arm’s second-highest quarterly revenue.
License and other revenue was $773 million, up 50%, while royalty revenue was $670 million, up 8% year over year.
Non-GAAP operating income was $638 million, up 37%, and operating margin was 44.2%, up 300 basis points year over year.
Non-GAAP EPS was $0.52, up 33% year over year; trailing-twelve-month free cash flow was $1.1 billion.
Non-GAAP operating expenses were $774 million, up 19%, reflecting increased engineering capacity and investment in next-generation platforms, compute subsystems, and the AGI CPU product family.
Business segment results
Licensing: Revenue reached $773 million; the SoftBank technology licensing and design-services agreement contributed $209 million, up 17% year over year, and management expected its quarterly run rate to remain around that level for the rest of the year.
Licensing was about $100 million above management’s expectation, partly because customers accelerated long-term commitments; Arm signed three new Total Access agreements and four additional Compute Subsystem licenses during the quarter.
Royalties: Data-center royalties doubled year over year, physical-AI royalties grew 50%, and edge-AI royalties were roughly flat.
AGI CPU silicon: Arm reported strong customer demand, purchase orders from multiple customers extending through calendar 2027, and first commercial deliveries remaining on track for fiscal Q4 2027.
Arm did not provide segment profit figures in the call; it did say first-version AGI CPU gross margins were expected to be around 30%–40%, improving toward 50%+ over time.
Capital allocation
Arm reported $1.1 billion of trailing-twelve-month free cash flow, which management said gave it flexibility to continue investing for long-term growth.
The company continued investing in engineering capacity, next-generation platforms, compute subsystems, and its AGI CPU product family.
The call did not specify dividend, share-repurchase, capital-expenditure, or debt-repayment plans.
Industry trends and dynamics
Management said AI is driving increased compute demand across cloud, devices, and autonomous systems, while agentic workloads are increasing the need for CPUs.
Arm-based server deployments are expanding alongside demand for Arm-designed silicon; management cited increasing design starts for platforms including Graviton, Cobalt, and Axion.
Arm-based chips shipped exceeded 10 billion in a single quarter, up 1.5 billion year over year, according to partners.
Arm-based PCs reached 20% of global shipments, and Arm’s smartphone CSS for Mobile 2 was described as improving agentic-AI workload performance by up to 70% through SME2.
Management cited a projected 38-gigawatt global data-center power shortfall through 2028 and emphasized the value of delivering more compute from available power.
Competitive landscape
Arm said its server market share at top hyperscalers rose from 15% in calendar 2024 to more than 50% in calendar 2025, and expected it to exceed 60% by the end of calendar 2026.
Management attributed the opportunity against x86 to Arm’s core efficiency and the ability of customers designing custom SoCs to optimize performance at the chip, rack, and system levels.
At OCP, testing by Signal65 showed the Arm AGI CPU delivering approximately twice the performance per rack versus AMD EPYC 9755; management clarified that the comparison used the generation preceding AMD Venice.
Management identified Amazon, Google, and Microsoft as the largest data-center royalty contributors, with NVIDIA ramping quickly.
Arm acknowledged AMD’s longer history, broader SKU portfolio, capacity purchases, and established supplier relationships, while saying Arm was working with supply-chain partners on its own long-term needs.
Macroeconomic environment
Higher memory prices were pressuring smartphone unit sales, particularly in mid- and lower-tier segments; management expected those constraints to remain relatively consistent in the near term.
Management said memory costs and other supply-chain pressures were affecting data-center system costs and could pressure margins.
Power availability was identified as a constraint on data-center expansion, with a cited forecast of a 38-gigawatt global shortfall through 2028.
Growth opportunities and strategies
Arm described two growth engines: its IP business, where partners license technology and later generate royalties as designs enter production, and its new AGI CPU silicon business.
Arm said strong licensing activity and customer adoption of Total Access and Compute Subsystem agreements support future design wins and royalty growth, typically over the following 12–24 months.
The company is expanding AGI CPU supply and working across wafer, substrate, testing, and memory availability; management said confidence in reaching up to $2 billion in AGI CPU revenue across fiscal 2027 and 2028 had increased.
Arm said it was considering connectivity, I/O, and networking capabilities to improve overall rack-system performance, in addition to CPU performance.
Arm Total Design for Physical AI brought together more than 80 companies to accelerate development and deployment of physical-AI systems.
Financial Guidance and Outlook
For Q3, Arm guided to revenue of $1.54 billion, plus or minus $50 million, representing approximately 24% year-over-year growth at the midpoint.
Management expected Q3 license and other revenue to grow a little over 50% year over year; royalty revenue was expected to grow low teens sequentially and low single digits year over year.
Q3 non-GAAP operating expenses were expected to be approximately $825 million, and non-GAAP EPS was guided to $0.56, plus or minus $0.04.
Arm expected continued strength in cloud AI and physical AI royalties, offset by edge-AI pressure from weaker smartphone demand and a difficult year-over-year comparison.
AGI CPU shipments were targeted to begin in Q4; management said any Q3 shipments, if they occurred, would not be significant.
For the smartphone business, the CFO characterized industry unit expectations as roughly flat and estimated Arm’s overall mobile business could grow at least in the double digits next fiscal year, supported by technology adoption and higher-tier products.
Management said data-center royalties had a high likelihood of triple-digit growth over the next few years, supported by market-share gains and increasing Arm adoption.
For AGI CPU gross margin, the CFO expected approximately 30%–40% for the first version and said the company expected to move toward 50%+ over time, likely with a later version.
