ARM Holdings PLC Earnings - Q3 2025 Analysis & Highlights
Byline: The earnings call transcript for Arm Holdings PLC Q2 Fiscal Year 2026 reveals a strong quarter driven by demand for AI compute, with record revenue and growth in royalty and licensing revenues. Key themes include the impact of AI on various markets, strategic partnerships, and aggressive investment in R&D to capture future opportunities.
Key Financial Results:
Q2 2026 revenue reached a record $1.14 billion, up 34% year-on-year, marking the third consecutive billion-dollar quarter.
Royalty revenue reached a record $620 million, up 21% year-on-year, driven by growth in all major markets.
Licensing revenue rose 56% to $515 million.
Non-GAAP EPS exceeded the high end of guidance.
Q3 revenue guidance is $1.225 billion, plus or minus $50 million, representing approximately 25% year-on-year growth.
Q3 royalties are expected to be up just over 20% year-on-year, and licensing is expected to be up 25% to 30% year-on-year.
Q3 non-GAAP EPS to be $0.41 plus or minus $0.04.
Business Segment Results:
Data center Neoverse royalties more than doubled year-on-year.
Smartphone royalty revenue grew significantly faster than the market due to Armv9 and CSS chips.
Data center royalties doubled year-on-year due to deployment of Arm-based chips by hyperscalers.
Automotive and IoT continued to grow year-on-year, contributing to strong royalty performance.
Capital Allocation:
The company is accelerating investment in R&D due to increased customer demand.
Non-GAAP operating expenses were $648 million, up 31% year-on-year, driven by strong R&D investment.
Investments in R&D reflect ongoing engineering headcount expansion to support customer demand for more Arm technology.
Industry Trends and Dynamics:
Artificial intelligence is reshaping every layer of technology.
AI compute demand is accelerating from milliwatts in edge devices to megawatts in hyperscale data centers.
Access to power has become a bottleneck in the data center, accelerating the adoption of Arm's Neoverse compute platform.
Demand for compute subsystems (CSS) continues to exceed expectations.
The company's software developer ecosystem is now more than 22 million strong.
Competitive Landscape:
Arm's compute forms the foundation of custom silicon from leading partners including NVIDIA Grace, AWS Graviton, Google Axion, and Microsoft Cobalt.
Google's Arm-based Axion chip delivers up to 65% better price performance while using 60% less energy.
Arm is about 50% more efficient than competitive solutions.
Macroeconomic Environment:
Unprecedented compute demand has led to data center Neoverse royalties to more than double year-on-year.
Power has become the bottleneck for everyone.
Growth Opportunities and Strategies:
Strategic partnership with Meta to scale AI efficiency across every layer of compute.
Expanded collaboration with Samsung, which is leveraging CSS for its Exynos family of chipsets.
Launched Lumex CSS, the company's most advanced mobile compute platform to date.
Exploring the possibility of moving beyond the current platform into additional compute subsystems, chiplets, or complex SOCs.
Acquisition of DreamBig Semiconductor to broaden offering to end customers with intellectual property around Ethernet and RDMA controllers.
Financial Guidance and Outlook:
The company expects royalties to be up just over 20% year-on-year and licensing to be up 25% to 30% year-on-year for Q3.
Non-GAAP operating expense for Q3 is expected to be approximately $720 million, and non-GAAP EPS is expected to be $0.41, plus or minus $0.04.
Strong demand from customers for Arm technology gives the company confidence in its long-term growth trajectory and strategy to enable AI everywhere.
The company will continue investing aggressively in R&D to capture opportunities and ensure that AI runs on Arm.
SoftBank Relationship:
Expanded license and services agreement with SoftBank.
Stargate provides a huge opportunity for Arm to partner with SoftBank and SoftBank partners to provide technology into all those solutions.
SoftBank contribution was about a $50 million increase from last quarter, reaching approximately $178 million, and that's a good run rate to assume going forward.
