ARM Holdings PLC Earnings - Q4 2025 Analysis & Highlights
Arm Holdings Plc (ARM) reports a record Q3 2026 with revenue growth of 26% and record royalties, driven by strong performance in AI and data center segments. The company highlights the increasing importance of its CPU chips in AI workloads and the rapid growth of its data center business. SoftBank's significant contribution to licensing revenue and the company's investment in R&D for next-generation architectures and compute subsystems are also key themes. Despite potential impacts from memory supply chain constraints, Arm remains confident in its future revenue profile and long-term growth.
Key Financial Results
Total revenue grew 26% year-on-year to a record $1.24 billion, marking the fourth consecutive quarter above $1 billion.
Royalties increased 27% to a record $737 million.
Licensing revenue was $505 million, up 25% year-on-year.
Non-GAAP EPS was $0.43.
Non-GAAP operating expenses were $716 million, up 37% year-on-year.
Non-GAAP operating income was $505 million, up 14% year-on-year.
Non-GAAP operating margin was about 41%.
Annualized Contract Value (ACV) grew 28% year-on-year.
Business Segment Results
Royalties were driven by record units with strength across AI and general purpose data center.
Data center royalty revenue has grown more than 100% year-on-year.
Data center royalty revenue continues to double year-on-year.
Edge AI devices, such as smartphones, continue to grow much faster than the market.
The automotive market in physical AI grew double-digits year-on-year.
Licensing growth was driven by strong demand for next-generation architectures and deeper strategic engagements with key customers.
SoftBank's agreement for Technology Licensing and Design Services contributed $200 million to licensing revenue.
Industry Trends and Dynamics
AI is changing how compute is built and where it runs across cloud infrastructure, edge devices, and physical systems.
The industry requires platforms to deliver high performance, energy efficiency, and flexibility across a broad range of power envelopes and use cases.
The shift towards inference is reshaping data center design, with increasing agent-based inference.
Agent-based AI requires coordination across many agents running continuously, which is well-suited for CPUs.
Customers need CPU chips with higher core counts and better power efficiency for always-on AI workloads.
AI is moving to everyday devices, opening up new growth opportunities in edge and physical AI markets.
Integrated platform designs are increasing to improve system efficiency, leading to more AI output or tokens per watt within the same power envelope.
Competitive Landscape
Arm-based CPU chips deliver industry-leading performance per watt.
Arm's share amongst the top hyperscalers is expected to reach 50%.
Google's Axion-powered N4A instances deliver up to 2x better price performance and 80% better performance per watt than comparable x86 offerings.
Arm's common software foundation across devices, vehicles, and robotics allows customers to scale deployments without rebuilding software stacks.
Growth Opportunities and Strategies
Arm has organized itself around three business units: edge AI, physical AI, and cloud AI.
Edge AI comprises smartphone and IoT businesses.
Physical AI includes automotive and robotics.
Cloud AI encompasses data center and networking.
Compute subsystems (CSS) are a key driver of royalty momentum, with 21 CSS licenses across 12 companies.
Five customers are now shipping CSS based chips, including two shipping a second-generation platform.
The top four Android smartphone vendors are shipping CSS power devices.
CSS helps customers get to market faster by lowering integration risk and complexity, increasing the value Arm delivers per chip.
Neoverse CPUs have surpassed 1 billion cores deployed.
Leading hyperscalers are launching new products with increased core counts to address the AI opportunity.
AWS launched its fifth-generation Graviton processor with 192 cores.
NVIDIA's next-generation Vera CPU features 88 Arm-based cores.
Microsoft introduced Cobalt 200 with 132 cores.
Google previewed its second Arm-based server processor with Axion-powered N4A instances.
Google has migrated over 30,000 applications to the Arm instruction set.
Arm is investing in next-generation architectures, compute subsystems, and silicon to enable higher performance, greater efficiency, and more AI use cases.
Financial Guidance and Outlook
For Q4, revenue is expected to be $1.47 billion, plus or minus $50 million, representing about 18% year-on-year growth at the midpoint.
Royalties are expected to be up low-teens year-on-year.
Licensing is expected to be up high-teens year-on-year.
Non-GAAP operating expense is expected to be approximately $745 million.
Non-GAAP EPS is expected to be $0.58, plus or minus $0.04.
The data center business is expected to be Arm's largest business in a few years, larger than mobile.
SoftBank's revenues are believed to be durable and will continue as SoftBank executes its roadmap.
Annualized Contract Value (ACV) growth continues to be above the long-term expectation of mid to high single-digit growth for license revenue.
Full-year royalties are expected to be in the north of 20% range.
The Q4 to Q1 step-up in OpEx is expected to be similar to last year's low double-digit sequential growth.
OpEx growth after Q1 is expected to moderate more than it did this year.
